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CORPO CONTINUATION

G.R. No. 160273 January 18, 2008

CEBU COUNTRY CLUB, INC., SABINO R. DAPAT, RUBEN D.


ALMENDRAS, JULIUS Z. NERI, DOUGLAS L. LUYM, CESAR T. LIBI,
RAMONTITO* E. GARCIA and JOSE B. SALA, petitioners,
vs.
RICARDO F. ELIZAGAQUE, respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, assailing the Decision 1 dated
January 31, 2003 and Resolution dated October 2, 2003 of the Court of Appeals in
CA-G.R. CV No. 71506.

The facts are:

Cebu Country Club, Inc. (CCCI), petitioner, is a domestic corporation operating as


a non-profit and non-stock private membership club, having its principal place of
business in Banilad, Cebu City. Petitioners herein are members of its Board of
Directors.

Sometime in 1987, San Miguel Corporation, a special company proprietary member


of CCCI, designated respondent Ricardo F. Elizagaque, its Senior Vice President
and Operations Manager for the Visayas and Mindanao, as a special non-proprietary
member. The designation was thereafter approved by the CCCIs Board of Directors.

In 1996, respondent filed with CCCI an application for proprietary membership. The
application was indorsed by CCCIs two (2) proprietary members, namely:
Edmundo T. Misa and Silvano Ludo.

As the price of a proprietary share was around the P5 million range, Benito Unchuan,
then president of CCCI, offered to sell respondent a share for only P3.5 million.
Respondent, however, purchased the share of a certain Dr. Butalid for only P3
Page 2 of 675

million. Consequently, on September 6, 1996, CCCI issued Proprietary Ownership


Certificate No. 1446 to respondent.

During the meetings dated April 4, 1997 and May 30, 1997 of the CCCI Board of
Directors, action on respondents application for proprietary membership was
deferred. In another Board meeting held on July 30, 1997, respondents application
was voted upon. Subsequently, or on August 1, 1997, respondent received a letter
from Julius Z. Neri, CCCIs corporate secretary, informing him that the Board
disapproved his application for proprietary membership.

On August 6, 1997, Edmundo T. Misa, on behalf of respondent, wrote CCCI a letter


of reconsideration. As CCCI did not answer, respondent, on October 7, 1997, wrote
another letter of reconsideration. Still, CCCI kept silent. On November 5, 1997,
respondent again sent CCCI a letter inquiring whether any member of the Board
objected to his application. Again, CCCI did not reply.

Consequently, on December 23, 1998, respondent filed with the Regional Trial
Court (RTC), Branch 71, Pasig City a complaint for damages against petitioners,
docketed as Civil Case No. 67190.

After trial, the RTC rendered its Decision dated February 14, 2001 in favor of
respondent, thus:

WHEREFORE, judgment is hereby rendered in favor of plaintiff:

1. Ordering defendants to pay, jointly and severally, plaintiff the amount


of P2,340,000.00 as actual or compensatory damages.

2. Ordering defendants to pay, jointly and severally, plaintiff the amount


of P5,000,000.00 as moral damages.

3. Ordering defendants to pay, jointly and severally, plaintiff the amount


of P1,000,000.00 as exemplary damages.

4. Ordering defendants to pay, jointly and severally, plaintiff the amount


of P1,000,000.00 as and by way of attorneys fees and P80,000.00 as litigation
expenses.

5. Costs of suit.
Page 3 of 675

Counterclaims are hereby DISMISSED for lack of merit.

SO ORDERED.2

On appeal by petitioners, the Court of Appeals, in its Decision dated January 31,
2003, affirmed the trial courts Decision with modification, thus:

WHEREFORE, premises considered, the assailed Decision dated February


14, 2001 of the Regional Trial Court, Branch 71, Pasig City in Civil Case No.
67190 is hereby AFFIRMED with MODIFICATION as follows:

1. Ordering defendants-appellants to pay, jointly and severally, plaintiff-


appellee the amount of P2,000,000.00 as moral damages;

2. Ordering defendants-appellants to pay, jointly and severally, plaintiff-


appellee the amount of P1,000,000.00 as exemplary damages;

3. Ordering defendants-appellants to pay, jointly and severally, plaintiff-


appellee the mount of P500,000.00 as attorneys fees and P50,000.00 as
litigation expenses; and

4. Costs of the suit.

The counterclaims are DISMISSED for lack of merit.

SO ORDERED.3

On March 3, 2003, petitioners filed a motion for reconsideration and motion for
leave to set the motion for oral arguments. In its Resolution4 dated October 2, 2003,
the appellate court denied the motions for lack of merit.

Hence, the present petition.

The issue for our resolution is whether in disapproving respondents application for
proprietary membership with CCCI, petitioners are liable to respondent for damages,
and if so, whether their liability is joint and several.

Petitioners contend, inter alia, that the Court of Appeals erred in awarding exorbitant
damages to respondent despite the lack of evidence that they acted in bad faith in
Page 4 of 675

disapproving the latters application; and in disregarding their defense of damnum


absque injuria.

For his part, respondent maintains that the petition lacks merit, hence, should be
denied.

CCCIs Articles of Incorporation provide in part:

SEVENTH: That this is a non-stock corporation and membership therein as


well as the right of participation in its assets shall be limited to qualified
persons who are duly accredited owners of Proprietary Ownership Certificates
issued by the corporation in accordance with its By-Laws.

Corollary, Section 3, Article 1 of CCCIs Amended By-Laws provides:

SECTION 3. HOW MEMBERS ARE ELECTED The procedure for the


admission of new members of the Club shall be as follows:

(a) Any proprietary member, seconded by another voting proprietary member,


shall submit to the Secretary a written proposal for the admission of a
candidate to the "Eligible-for-Membership List";

(b) Such proposal shall be posted by the Secretary for a period of thirty (30)
days on the Club bulletin board during which time any member may interpose
objections to the admission of the applicant by communicating the same to
the Board of Directors;

(c) After the expiration of the aforesaid thirty (30) days, if no objections have
been filed or if there are, the Board considers the objections unmeritorious,
the candidate shall be qualified for inclusion in the "Eligible-for-Membership
List";

(d) Once included in the "Eligible-for-Membership List" and after the


candidate shall have acquired in his name a valid POC duly recorded in the
books of the corporation as his own, he shall become a Proprietary Member,
upon a non-refundable admission fee of P1,000.00, provided that admission
fees will only be collected once from any person.

On March 1, 1978, Section 3(c) was amended to read as follows:


Page 5 of 675

(c) After the expiration of the aforesaid thirty (30) days, the Board may,
by unanimous vote of all directors present at a regular or special meeting,
approve the inclusion of the candidate in the "Eligible-for-Membership List".

As shown by the records, the Board adopted a secret balloting known as the "black
ball system" of voting wherein each member will drop a ball in the ballot box. A
white ball represents conformity to the admission of an applicant, while a black ball
means disapproval. Pursuant to Section 3(c), as amended, cited above, a unanimous
vote of the directors is required. When respondents application for proprietary
membership was voted upon during the Board meeting on July 30, 1997, the ballot
box contained one (1) black ball. Thus, for lack of unanimity, his application was
disapproved.

Obviously, the CCCI Board of Directors, under its Articles of Incorporation, has the
right to approve or disapprove an application for proprietary membership. But such
right should not be exercised arbitrarily. Articles 19 and 21 of the Civil Code on the
Chapter on Human Relations provide restrictions, thus:

Article 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.

Article 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.

In GF Equity, Inc. v. Valenzona,5 we expounded Article 19 and correlated it with


Article 21, thus:

This article, known to contain what is commonly referred to as the principle


of abuse of rights, sets certain standards which must be observed not only in
the exercise of one's rights but also in the performance of one's duties. These
standards are the following: to act with justice; to give everyone his due; and
to observe honesty and good faith. The law, therefore, recognizes a primordial
limitation on all rights; that in their exercise, the norms of human conduct set
forth in Article 19 must be observed. A right, though by itself legal because
recognized or granted by law as such, may nevertheless become the
source of some illegality. When a right is exercised in a manner which
does not conform with the norms enshrined in Article 19 and results in
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damage to another, a legal wrong is thereby committed for which the


wrongdoer must be held responsible. But while Article 19 lays down a rule
of conduct for the government of human relations and for the maintenance of
social order, it does not provide a remedy for its violation. Generally, an action
for damages under either Article 20 or Article 21 would be proper. (Emphasis
in the original)

In rejecting respondents application for proprietary membership, we find that


petitioners violated the rules governing human relations, the basic principles to be
observed for the rightful relationship between human beings and for the stability of
social order. The trial court and the Court of Appeals aptly held that petitioners
committed fraud and evident bad faith in disapproving respondents applications.
This is contrary to morals, good custom or public policy. Hence, petitioners are liable
for damages pursuant to Article 19 in relation to Article 21 of the same Code.

It bears stressing that the amendment to Section 3(c) of CCCIs Amended By-Laws
requiring the unanimous vote of the directors present at a special or regular meeting
was not printed on the application form respondent filled and submitted to CCCI.
What was printed thereon was the original provision of Section 3(c) which was silent
on the required number of votes needed for admission of an applicant as a proprietary
member.

Petitioners explained that the amendment was not printed on the application form
due to economic reasons. We find this excuse flimsy and unconvincing. Such
amendment, aside from being extremely significant, was introduced way back in
1978 or almost twenty (20) years before respondent filed his application. We cannot
fathom why such a prestigious and exclusive golf country club, like the CCCI, whose
members are all affluent, did not have enough money to cause the printing of an
updated application form.

It is thus clear that respondent was left groping in the dark wondering why his
application was disapproved. He was not even informed that a unanimous vote of
the Board members was required. When he sent a letter for reconsideration and an
inquiry whether there was an objection to his application, petitioners apparently
ignored him. Certainly, respondent did not deserve this kind of treatment. Having
been designated by San Miguel Corporation as a special non-proprietary member of
CCCI, he should have been treated by petitioners with courtesy and civility. At the
very least, they should have informed him why his application was disapproved.
Page 7 of 675

The exercise of a right, though legal by itself, must nonetheless be in accordance


with the proper norm. When the right is exercised arbitrarily, unjustly or excessively
and results in damage to another, a legal wrong is committed for which the
wrongdoer must be held responsible.6 It bears reiterating that the trial court and the
Court of Appeals held that petitioners disapproval of respondents application is
characterized by bad faith.

As to petitioners reliance on the principle of damnum absque injuria or damage


without injury, suffice it to state that the same is misplaced. In Amonoy v.
Gutierrez,7 we held that this principle does not apply when there is an abuse of a
persons right, as in this case.

As to the appellate courts award to respondent of moral damages, we find the same
in order. Under Article 2219 of the New Civil Code, moral damages may be
recovered, among others, in acts and actions referred to in Article 21. We believe
respondents testimony that he suffered mental anguish, social humiliation and
wounded feelings as a result of the arbitrary denial of his application. However, the
amount of P2,000,000.00 is excessive. While there is no hard-and-fast rule in
determining what would be a fair and reasonable amount of moral damages, the same
should not be palpably and scandalously excessive. Moral damages are not intended
to impose a penalty to the wrongdoer, neither to enrich the claimant at the expense
of the defendant.8 Taking into consideration the attending circumstances here, we
hold that an award to respondent of P50,000.00, instead of P2,000,000.00, as moral
damages is reasonable.

Anent the award of exemplary damages, Article 2229 allows it by way of example
or correction for the public good. Nonetheless, since exemplary damages are
imposed not to enrich one party or impoverish another but to serve as a deterrent
against or as a negative incentive to curb socially deleterious actions,9 we reduce the
amount from P1,000,000.00 to P25,000.00 only.

On the matter of attorneys fees and litigation expenses, Article 2208 of the same
Code provides, among others, that attorneys fees and expenses of litigation may be
recovered in cases when exemplary damages are awarded and where the court deems
it just and equitable that attorneys fees and expenses of litigation should be
recovered, as in this case. In any event, however, such award must be reasonable,
just and equitable. Thus, we reduce the amount of attorneys fees (P500,000.00) and
litigation expenses (P50,000.00) to P50,000.00 and P25,000.00, respectively.
Page 8 of 675

Lastly, petitioners argument that they could not be held jointly and severally liable
for damages because only one (1) voted for the disapproval of respondents
application lacks merit.

Section 31 of the Corporation Code provides:

SEC. 31. Liability of directors, trustees or officers. Directors or trustees


who willfully and knowingly vote for or assent to patently unlawful acts of
the corporation or who are guilty of gross negligence or bad faith in directing
the affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, or trustees shall be liable jointly
and severally for all damages resulting therefrom suffered by the corporation,
its stockholders or members and other persons. (Emphasis ours)

WHEREFORE, we DENY the petition. The challenged Decision and Resolution


of the Court of Appeals in CA-G.R. CV No. 71506 are AFFIRMED with
modification in the sense that (a) the award of moral damages is reduced
from P2,000,000.00 to P50,000.00; (b) the award of exemplary damages is reduced
from P1,000,000.00 to P25,000.00; and (c) the award of attorneys fees and
litigation expenses is reduced from P500,000.00 and P50,000.00 to P50,000.00
and P25,000.00, respectively.

Costs against petitioners.

SO ORDERED.

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM


and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
Page 9 of 675

GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO


V. CRUZ, respondents.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R.


LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN,
DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO
SALAZAR, respondents.

G.R. Nos. 75975-76 December 15, 1989

LUCIANO E. SALAZAR, petitioner,


vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V.
CRUZ and the COURT OF APPEALS, respondents.

Belo, Abiera & Associates for petitioners in 75875.

Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be,
with cumulative voting to be allowed but without interference from ASI.
Page 10 of 675

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary


purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage primarily
in the business of manufacturing in the Philippines and selling here and abroad
vitreous china and sanitary wares. The parties agreed that the business operations in
the Philippines shall be carried on by an incorporated enterprise and that the name
of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be


substantially in the form annexed hereto as Exhibit A and, insofar as
permitted under Philippine law, shall specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of


Directors, which shall consist of nine individuals. As long as American-
Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as


a minority group, including the grant of veto powers over a number of corporate acts
and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Page 11 of 675

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.

The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups.
According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it apparently
had other subsidiaries of joint joint venture groups in the countries where Philippine
exports were contemplated. On March 8, 1983, the annual stockholders' meeting was
held. The meeting was presided by Baldwin Young. The minutes were taken by the
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the
stockholders then proceeded to the election of the members of the board of directors.
The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin
and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto
Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar,
who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled
the last two nominations out of order on the basis of section 5 (a) of the Agreement,
the consistent practice of the parties during the past annual stockholders' meetings
to nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following events then,
transpired:

... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to
the body of stockholders present that a vote be taken on the ruling of
the Chairman. The Chairman, Baldwin Young, declared the appeal out
of order and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine
Investors and the 3 nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E. Salazar and Charles
Chamsay. The ASI representative, Mr. Jaqua protested the decision of
the Chairman and announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay,
Page 12 of 675

and instructed the Secretary to so vote. Luciano E. Salazar and other


proxy holders announced that all the votes owned by and or represented
by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were
being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast
all votes equally in favor of the three ASI nominees, namely, Wolfgang
Aurbach, John Griffin and David Whittingham and the six originally
nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul
Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee,
and Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham
Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, Raul A. Boncan, Baldwin Young. The representative of
ASI then moved to recess the meeting which was duly seconded. There
was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin Young,
who announced that the motion was carried and declared the meeting
adjourned. Protests against the adjournment were registered and having
been ignored, Mr. Jaqua the ASI representative, stated that the meeting
was not adjourned but only recessed and that the meeting would be
reconvened in the next room. The Chairman then threatened to have the
stockholders who did not agree to the decision of the Chairman on the
casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar
and other stockholders, allegedly representing 53 or 54% of the shares
of Saniwares, decided to continue the meeting at the elevator lobby of
the American Standard Building. The continued meeting was presided
by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On
the basis of the cumulative votes cast earlier in the meeting, the ASI
Group nominated its four nominees; Wolfgang Aurbach, John Griffin,
David Whittingham and Charles Chamsay. Luciano E. Salazar voted
for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the
explanation that there was a tie among the other six (6) nominees for
the four (4) remaining positions of directors and that the body decided
not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul
Page 13 of 675

A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No.
2417. The second petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and
Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC
Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718.
Both sets of parties except for Avelino Cruz claimed to be the legitimate directors
of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.

The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and
Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar
(docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders' meeting of
Saniwares be ordered convoked as soon as possible, under the supervision of the
Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE


ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS


FROM EXERCISING THEIR FULL VOTING RIGHTS
REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES,
THUS DEPRIVING PETITIONERS AND THE CORPORATION
Page 14 of 675

THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT


DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND


READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES
WHICH WERE NOT THERE, WHICH ACTION IT CANNOT
LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision
on the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of
binding contractual agreements entered into by stockholders and the
replacement of the conditions of such agreements with terms never
contemplated by the stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation


of the property rights of stockholders without due process of law in
order that a favored group of stockholders may be illegally benefitted
and guaranteed a continuing monopoly of the control of a corporation.
(pp. 14-15, Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT,


WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT
AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY


RULE THAT PRIVATE PETITIONERS HEREIN WERE THE
DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983
ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24,
Rollo-75951)
Page 15 of 675

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation
and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B.
and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press
Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the


parties hereto partners or joint venturers in respect of any transaction
hereunder. (At P. 66, Rollo-GR No. 75875)

They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7, Rule
130 of the Revised Rules of Court. According to them, the Lagdameo and Young
Group never pleaded in their pleading that the "Agreement" failed to express the true
intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have


been reduced to writing, it is to be considered as containing all such
Page 16 of 675

terms, and therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to


express the true intent and agreement of the parties or the validity of the
agreement is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed
to express the true intent of the parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that


the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and
does not preclude, the existence of two distinct groups of stockholders
in Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise,
and if some words in the Agreement appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former (Art.
1370, New Civil Code). The various stipulations of a contract shall be
interpreted together attributing to the doubtful ones that sense which
may result from all of them taken jointly (Art. 1374, New Civil Code).
Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered.
(Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No.
2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the


parties joined their efforts in furtherance of an enterprise for their joint
profit, the question whether they intended by their agreement to create
Page 17 of 675

a joint adventure, or to assume some other relation is a question of fact


for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653;
Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27
Wyo, 423, 200 P 96 33 C.J. p. 871)

In the instant cases, our examination of important provisions of the Agreement as


well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation. The
history of the organization of Saniwares and the unusual arrangements which govern
its policy making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he


negotiated the Agreement with ASI in behalf of the Philippine
nationals. He testified that ASI agreed to accept the role of minority
vis-a-vis the Philippine National group of investors, on the condition
that the Agreement should contain provisions to protect ASI as the
minority.

An examination of the Agreement shows that certain provisions were


included to protect the interests of ASI as the minority. For example,
the vote of 7 out of 9 directors is required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually
entitled to designate a member of the Executive Committee and the vote
of this member is required for certain transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the


amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and
(b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI
[Sec. 13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-
how to Saniwares and the latter paid royalties for the same. (At p. 2).

xxx xxx xxx


Page 18 of 675

It is pertinent to note that the provisions of the Agreement requiring a


7 out of 9 votes of the board of directors for certain actions, in effect
gave ASI (which designates 3 directors under the Agreement) an
effective veto power. Furthermore, the grant to ASI of the right to
designate certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most
significantly to the issues of tms case, the provision that ASI shall
designate 3 out of the 9 directors and the other stockholders shall
designate the other 6, clearly indicate that there are two distinct groups
in Saniwares, namely ASI, which owns 40% of the capital stock and
the Philippine National stockholders who own the balance of 60%, and
that 2) ASI is given certain protections as the minority stockholder.

Premises considered, we believe that under the Agreement there are two
groups of stockholders who established a corporation with provisions
for a special contractual relationship between the parties, i.e., ASI and
the other stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture.


Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners or
joint venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group
Page 19 of 675

undermines the local majority ownership and actively tries to completely or


predominantly take over the entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in
industries where constitutional and legal requirements reserve controlling ownership
to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal

In fact, the Philippine Corporation Code itself recognizes the right of


stockholders to enter into agreements regarding the exercise of their
voting rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and


signed by the parties thereto, may provide that in exercising any voting
rights, the shares held by them shall be voted as therein provided, or as
they may agree, or as determined in accordance with a procedure agreed
upon by them.

Appellants contend that the above provision is included in the


Corporation Code's chapter on close corporations and Saniwares cannot
be a close corporation because it has 95 stockholders. Firstly, although
Saniwares had 95 stockholders at the time of the disputed stockholders
meeting, these 95 stockholders are not separate from each other but are
divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95
stockholders. The YoungYutivo family count for another 13
stockholders, the Chamsay family for 8 stockholders, the Santos family
for 9 stockholders, the Dy family for 7 stockholders, etc. If the members
of one family and/or business or interest group are considered as one
(which, it is respectfully submitted, they should be for purposes of
determining how closely held Saniwares is there were as of 8 March
1983, practically only 17 stockholders of Saniwares. (Please refer to
discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).
Page 20 of 675

Secondly, even assuming that Saniwares is technically not a close


corporation because it has more than 20 stockholders, the undeniable
fact is that it is a close-held corporation. Surely, appellants cannot
honestly claim that Saniwares is a public issue or a widely held
corporation.

In the United States, many courts have taken a realistic approach to joint
venture corporations and have not rigidly applied principles of
corporation law designed primarily for public issue corporations. These
courts have indicated that express arrangements between corporate
joint ventures should be construed with less emphasis on the ordinary
rules of law usually applied to corporate entities and with more
consideration given to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American Refrigerator Transit Co.,
7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254
Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry;
240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d
903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint
Venture Corporations", 11 Vand Law Rev. p. 680,1958). These
American cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture
corporations should control, and the courts ruled that substantial justice
lay with those litigants who relied on the joint venture agreement rather
than the litigants who relied on the orthodox principles of corporation
law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint


venture deviate from the traditional pattern of corporation management.
A noted authority has pointed out that just as in close corporations,
shareholders' agreements in joint venture corporations often contain
provisions which do one or more of the following: (1) require greater
than majority vote for shareholder and director action; (2) give certain
shareholders or groups of shareholders power to select a specified
number of directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O' Neal, Close Corporations,
Page 21 of 675

1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer,
P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not


necessarily imply that agreements regarding the exercise of voting
rights are allowed only in close corporations. As Campos and Lopez-
Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does


this provision necessarily imply that these agreements can be valid only
in close corporations as defined by the Code? Suppose that a
corporation has twenty five stockholders, and therefore cannot qualify
as a close corporation under section 96, can some of them enter into an
agreement to vote as a unit in the election of directors? It is submitted
that there is no reason for denying stockholders of corporations other
than close ones the right to enter into not voting or pooling agreements
to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement.
Of course, voting or pooling agreements are perhaps more useful and
more often resorted to in close corporations. But they may also be found
necessary even in widely held corporations. Moreover, since the Code
limits the legal meaning of close corporations to those which comply
with the requisites laid down by section 96, it is entirely possible that a
corporation which is in fact a close corporation will not come within
the definition. In such case, its stockholders should not be precluded
from entering into contracts like voting agreements if these are
otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon the
signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-
94)

In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals
correctly stated:
Page 22 of 675

As in other joint venture companies, the extent of ASI's participation in


the management of the corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine directors shall be
designated by ASI and the remaining six by the other stockholders, i.e.,
the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is


imperative that the parties should honor and adhere to their respective
rights and obligations thereunder. Appellants seem to contend that any
allocation of board seats, even in joint venture corporations, are null
and void to the extent that such may interfere with the stockholder's
rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down,
even if such agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not parties thereto. It
may well be that it would be more cogent to hold, as the Securities and
Exchange Commission has held in the decision appealed from, that
cumulative voting rights may be voluntarily waived by stockholders
who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between
foreign and local stockholders, so long as such agreements do not
adversely affect third parties.

In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give
life and effect to the particular contractual rights and obligations which
the parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and
the contractual allocation of board seats Cannot be disregarded. On the
other hand, the rights of the stockholders to cumulative voting should
also be protected.

In our decision sought to be reconsidered, we opted to uphold the


second over the first. Upon further reflection, we feel that the proper
and just solution to give due consideration to both factors suggests itself
quite clearly. This Court should recognize and uphold the division of
Page 23 of 675

the stockholders into two groups, and at the same time uphold the right
of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be. In practical
terms, as suggested by appellant Luciano E. Salazar himself, this means
that if the Filipino stockholders cannot agree who their six nominees
will be, a vote would have to be taken among the Filipino stockholders
only. During this voting, each Filipino stockholder can cumulate his
votes. ASI, however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board seats,
a result which is clearly contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law (Com.
Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three
directors. (Rollo-75875, pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the Corporation
Code which gives the stockholders of a corporation the right to cumulate their votes
in electing directors. Petitioner Salazar adds that this right if granted to the ASI
Group would not necessarily mean a violation of the Anti-Dummy Act
(Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board
of directors or governing body of corporations or associations engaging
in partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities.
(amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)

The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
Page 24 of 675

The legal concept of ajoint venture is of common law origin. It has no


precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel,
266 Fed. 811 [1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183,
288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction, and
is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947];
Gates v. Megargel 266 Fed. 811 [1920]). This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783, Civil Code).
It would seem therefore that under Philippine law, a joint venture is a
form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95
Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties
as regards the allocation of director seats under Section 5 (a) of the "Agreement,"
and the right of each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3 (a) (1) of the
Page 25 of 675

"Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.

This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within
the Filipino group. Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate under the Agreement,
and may even be able to get a majority of the board seats, a result which
is clearly contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law (Com.
Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three
directors. (At p. 39, Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the board
of directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors. This is
the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board seats in the 9-man
board of directors there are provisions already agreed upon and embodied in the
Page 26 of 675

parties' Agreement to protect the interests arising from the minority status of the
foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which
were impliedly affirmed by the appellate court declaring Messrs. Wolfgang
Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin
young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George
F. Lee as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."

They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under
its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the majority
Page 27 of 675

status of the Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended
decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are
declared as the duly elected directors of Saniwares at the March 8,1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

SO ORDERED.

G.R. No. 182571 September 2, 2013

LIGAYA ESGUERRA, LOWELL ESGUERRA AND LIESELL


ESGUERRA, PETITIONERS,
vs.
HOLCIM PHILIPPINES, INC., RESPONDENT.

DECISION

REYES, J.:

The present petition is an offshoot of our final and executory decision promulgated
on December 27, 2002 in G.R. No. 120004, entitled "Iluminada de Guzman v. Court
of Appeals and Jorge Esguerra."1 Ligaya Esguerra (Ligaya), Lowell Esguerra
(Lowell), and Liesell Esguerra (Liesell) (petitioners) are heirs of Jorge Esguerra
(Esguerra) while herein respondent, HOLCIM Philippines, Inc. (HOLCIM) is the
successor-in-interest of Iluminada de Guzman (de Guzman).

In the instant petition, the petitioners assail the Decision2 dated August 31, 2007 and
Resolution3 dated April 14, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
94838 which reversed and set aside the: (a) Order4 dated December 1, 2005 of the
Page 28 of 675

Regional Trial Court (RTC) of Malolos, Bulacan, Branch 16 granting the petitioners
motion for the issuance of the alias writ of execution of the Decision dated December
27, 2002 in G.R. No. 120004, which ordered HOLCIM to pay the amount equivalent
to the total volume of limestones extracted from the subject property in the sum
of P91,872,576.72; (b) Order5 dated December 20, 2005, which reiterated the
issuance of the alias writ of execution; and (c) Order6 dated June 7, 2006, which
denied the motion for reconsideration of the above-mentioned orders and the
manifestation and motion for ocular inspection filed by HOLCIM. The CAs
Resolution dated April 14, 2008 denied herein petitioners motion for
reconsideration of the CAs Decision dated August 31, 2007.

Antecedent Facts

As a backgrounder and as stated in our Decision dated December 27, 2002 in G.R.
No. 120004, therein respondent Esguerra filed on December 12, 1989 with the RTC,
Malolos, Bulacan, Branch 16 an action to annul the Free Patent in the name of de
Guzman. Esguerra claimed that he was the owner of Lot 3308-B, located at Matiktik,
Norzagaray, Bulacan, covered by Transfer Certificate of Title No. T-1685-P (M) of
the Registry of Deeds of Bulacan, with an approximate area of 47,000 square meters.
Esguerra learned that the said parcel of land was being offered for sale by de Guzman
to Hi-Cement Corporation (now named HOLCIM Philippines, Inc.). The former
possessor of the land, Felisa Maningas, was issued Free Patent No. 575674 which
was subsequently issued in the name of de Guzman over said parcel of land located
at Gidgid, Norzagaray, Bulacan with an area of 20.5631 hectares and described in
Psu-216349, covered by Original Certificate of Title (OCT) No. P-3876. Esguerra
also demanded that the portion of his property, which has been encroached upon and
included in de Guzmans Free Patent, be excluded. He later amended his complaint
to implead Hi-Cement as a co-defendant since the latter was hauling marble from
the subject land. He also prayed that Hi-Cement be ordered to desist from hauling
marble, to account for the marble already hauled and to pay him.7

The RTC dismissed Esguerras complaint but on appeal, the CA reversed in the
Decision dated February 28, 1995 in CA-G.R. CV No. 40140. The dispositive
portion reads as follows:

"WHEREFORE, premises considered, the decision appealed from is REVERSED


and SET ASIDE and another judgment is hereby rendered:
Page 29 of 675

"1. Declaring [de Guzmans] OCT No. P-3876 (Exh. B) null and void insofar
as the disputed area of 38,641 square meters, which is part of Lot 3308-B,
covered by TCT No. 1685-p (Exh. C) in the name of [Esguerra];

"2. Ordering [de Guzman] to cause the segregation, at his expense, of the
disputed area of 38,641 square meters from OCT No. P-3876;

"3. Ordering [de Guzman] to surrender her owners copy of OCT No. P-3876
to the Register of Deeds of Bulacan who is in turn ordered to exclude from
said OCT No. P-3876 the disputed area of 38,641 square meters included in
[Esguerras] TCT No. T-1685;

"4. Ordering [de Guzman] to immediately vacate and surrender to [Esguerra]


possession of the disputed area of 38,641 square meters;

"5. Ordering defendant-appellee Hi-Cement Corporation to immediately


cease and desist from quarrying or extracting marble from the disputed area;

"6. Ordering defendant-appellee Hi-Cement Corporation to make an


accounting of the compensation or royalty it has paid to defendant-appellee
Iluminada de Guzman for marbles quarried from the disputed area of 38,451
square meters from the time of the filing of the amended complaint on March
23, 1990.

"7. Ordering and sentencing defendant-appellee Iluminada de Guzman to pay


and turn over to [Esguerra] all such amounts that she has received from her
co-defendant Hi-Cement Corporation as compensation or royalty for marbles
extracted or quarried from the disputed area of 38,451 square meters
beginning March 23, 1990; and

"8. Ordering defendant-appellee Iluminada de Guzman to pay the costs.

"SO ORDERED."8

In our Decision dated December 27, 2002 in G.R. No. 120004, the Court affirmed
in toto the aforesaid CAs decision. After attaining finality, the case was remanded
to the RTC for execution.9
Page 30 of 675

Thereafter, the heirs of Esguerra, herein petitioners, filed an Omnibus


Motion10 dated September 28, 2004 with the RTC, manifesting that the Courts
decision in G.R. No. 120004 has yet to be executed,11 and thus prayed:

xxxx

1. That Sheriff Perlito Dimagiba be directed to submit his Return on the


execution of the judgment;

2. That defendant Iluminada de Guzman and Hi-Cement (now Union Cement


Corporation Matictic, Sapang Kawayn [sic], Norzagaray, Bulacan) be
diverted [sic] to appear before this Honorable Court x x x;

3. That the plaintiffs be granted other legal and equitable reliefs.12

On December 1, 2004, the RTC issued an Order13, to wit:

Acting on the Omnibus Motion filed by the Heirs of Jorge Esguerra, through
counsel, Atty. Orlando Lambino, and pursuant to Secs. 36 and 37, Rule 39 of [the]
1997 Rules of Civil Procedure, the Court hereby GRANTS the same

AS PRAYED FOR, x x x Sheriff Perlito Dimagiba is hereby directed to submit his


return of a Writ of Execution dated October 28, 2003 within five (5) days from
receipt of this Order.

Accordingly, defendant Iluminada de Guzman of Tanza, Malabon, Metro Manila


and the Hi-Cement (now Union Cement Corporation, Matictic, Sapang Kawayan,
Norzagaray, Bulacan) are hereby ordered to appear before this Court on December
6, 2004 at 8:30 oclock in the morning to be examined on the dispositive portion of
the judgment of the Court of Appeals, affirmed by the Supreme Court.14

However, contrary to the Order dated December 1, 2004, de Guzman and HOLCIM
were not examined. Rather, the petitioners presented Engineer Louie Balicanta who
testified that upon an examination of the topographical maps covering the land of
the deceased Esguerra, the estimated volume of limestone hauled or quarried
therefrom covering the years 1990 to 2003 was 3,535,020.471 cubic meters. On May
16, 2005, the petitioners filed their Formal Offer of Exhibits.15

Later, the petitioners filed a Supplement to the Motion for Execution16 dated August
16, 2005 and a Motion for Alias Writ of Execution17 dated November 9, 2005. They
Page 31 of 675

claimed that the royalties due them amounted to P10.00 per metric ton. Thus, for the
9,187,257.67 metric tons18 of limestone which HOLCIM allegedly acquired, the
petitioners should receive a total royalty of P91,872,576.72.19

On December 1, 2005, the RTC made a finding that the total volume of limestone
which HOLCIM allegedly quarried from the subject land amounted
to P91,872,576.72. It also ordered the issuance of an Alias Writ of Execution for the
royalties which were purportedly due to the petitioners.20 The said order states:

Acting on the motion for alias writ of execution filed by the [petitioners], through
counsel, to be meritorious, the same is hereby granted, it appearing that the decision
subject matter of the writ of execution has not been satisfied by [de Guzman] and
Hi-Cement Corporation, and considering, further, that the Total Volume Extracted
Materials (LIMESTONE) at Lot #3308-B PSD-102661 (Annex A) was properly
proven during the hearing for the examination of judgment debtors showing the
claim of Php91,872,576.72 to be substantiated based on the Monthly Mineral
Commodity Price Monitor for January 2005 (Annex B), together with the O.R. for
Certification fee (Annex C).

AS PRAYED FOR, let an alias writ of execution be issued for the implementation
of the Decision of the Supreme Court in relation to the total volume extracted by Hi-
Cement (now HOLCIM) which is now the successor of defendant Iluminada de
Guzman.21

On December 8, 2005, the petitioners filed an Urgent Motion for


Clarification22 praying that the alias writ of execution be clarified for the purpose of
directing [de Guzman] and/or Hi-Cement Corporation and/or HOLCIM to pay the
petitioners the amount of P91,872,576.72.

As prayed for, the RTC issued an Order23 on December 20, 2005, stating thus:

In view of the Urgent Motion for Clarification filed by the [petitioners], through
counsel, and there being no comment/opposition filed by [de Guzman], let an alias
writ of execution be issued directing [de Guzman] and/or Hi-Cement Corporation
and/or HOLCIM to pay the [petitioners] the amount of Php 91,872,576.72
representing their liability for the minerals extracted from the subject property
pursuant to the Order of the Court, dated December 01, 2005.24
Page 32 of 675

Subsequently, an alias writ of execution and notices of garnishment on several


banks, garnishing all amounts that may have been deposited or owned by HOLCIM,
were issued on December 20, 2005 and December 21, 2005 respectively.25

On January 5, 2006, HOLCIM filed a motion for reconsideration.26 It alleged that it


did not owe any amount of royalty to the petitioners for the extracted limestone from
the subject land. HOLCIM averred that it had actually entered into an
Agreement27 dated March 23, 1993 (Agreement) with the petitioners governing their
respective rights and obligations in relation to the limestone allegedly extracted from
the land in question. HOLCIM further asserted that it had paid advance royalty to
the petitioners from year 1993, in an aggregate sum of P694,184.22, an amount more
than the P218,693.10 which the petitioners were entitled under the Agreement.28

On January 13, 2006, the petitioners filed its Opposition to [the] Motion for
Reconsideration29 dated January 7, 2006, claiming that the Motion for
Reconsideration is barred by the omnibus motion rule because HOLCIM failed to
question the petitioners motion for execution of this Courts decision in G.R. No.
120004. The petitioners also averred that HOLCIM is barred by estoppel to question
the execution of the decision based on the Agreement, because said Agreement is in
contravention with the trial courts previous orders which required HOLCIM to
deposit to the clerk of court the royalties due the deceased Esguerra. The petitioners
also argued that the Agreement is a way to evade the trial courts orders and has been
procured by taking advantage of the petitioners financial distress after Esguerra
died.30

On February 21, 2006, HOLCIM filed a Manifestation and Motion (for Ocular
Inspection).31 It asked the court to conduct an ocular inspection, advancing the
argument that HOLCIM did not extract limestone from any portion of the 47,000-sq
m property which Esguerra owned; and that the pictures, which the petitioners
presented to prove that HOLCIM has been extracting limestone from the subject
land until year 2005, were actually photographs of areas outside the contested land.

On June 7, 2006, the RTC denied HOLCIMs motion for reconsideration and motion
for ocular inspection. It held that the petitioners proved their entitlement to the
royalties totaling to P91,872,576.72. The RTC also blamed HOLCIM for not
presenting its own witnesses and evidence. It further stated that to grant the motions
for reconsideration and ocular inspection is to reopen the case despite the fact that
the trial court has no more power to do so since the execution of this Courts decision
in G.R. No. 120004 is now a matter of right on the petitioners part.32
Page 33 of 675

On June 13, 2006, HOLCIM filed a Petition for Certiorari (with Urgent Applications
for Temporary Restraining Order and/or Writ of Preliminary Injunction)33 with the
CA. On June 30, 2006, the petitioners filed their Comment on [the] "Petition for
Certiorari" and Opposition,34 to which HOLCIM filed a Reply35 on July 25, 2006.
On August 31, 2007, the CA promulgated the now assailed decision finding merit in
HOLCIMs petition.36 The dispositive portion states:

WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED


and the assailed Orders REVERSED and SET ASIDE. No costs.

SO ORDERED.37

The motion for reconsideration thereof was denied in the CAs Resolution38 dated
April 14, 2008.

Issues

Thus, the petitioners filed the present petition for review under Rule 45 of the 1997
Rules of Civil Procedure, raising the following assignment of errors:

A. THE [CA] GRAVELY ERRED IN NOT HOLDING THAT [HOLCIM]


IS ESTOPPED TO QUESTION THE JURISDICTION OF THE TRIAL
COURT TO CONDUCT A HEARING ON THE EXACT PAYMENT
WHICH [HOLCIM] WAS SUPPOSED TO PAY TO THE PETITIONERS;

B. THE [CA] GRAVELY ERRED IN NOT DISMISSING [HOLCIMS]


PETITION FOR CERTIORARI ON [THE] GROUND OF LACK OF
BOARD RESOLUTION AUTHORIZING THE FILING OF THE
PETITION;

C. THE [CA] GRAVELY ERRED IN NOT DISMISSING THE PETITION


FOR [CERTIORARI], IT BEING NOT THE PROPER REMEDY, BUT AN
APPEAL;

D. THE [CA] GRAVELY ERRED IN HOLDING THAT THE TRIAL


COURT GRAVELY ABUSED ITS DISCRETION IN THE EXECUTION
OF THE DECISION BY CALLING FOR EVIDENCE TO PROVE THE
EXACT AMOUNT WHICH [HOLCIM] HAS TO PAY TO THE
PETITIONERS;
Page 34 of 675

E. THE [CA] GRAVELY ERRED IN HOLDING THAT THE ORDERS OF


THE TRIAL COURT OF DECEMBER 1, 2005, DECEMBER 20, 2005,
AND JUNE 7, 2006 MODIFIED THE DECISION OF THE CA G.R. CV NO.
40140 OF FEBRUARY 28, 1995[.]39

Our Ruling

The present petition has substantially complied with the requirements.

HOLCIM alleged that the present petition is fatally defective since all of the most
important pleadings before the RTC and the CA have not been attached to the present
petition. However, a review of the records of the case shows that the petitioners
attached to their petition the following: (a) the CAs Decision in CA-G.R. SP No.
94838 dated August 31, 2007;40 (b) the CAs Resolution in CA-G.R. SP No. 94838
dated April 14, 2008;41 (c) the RTCs Order in Civil Case No. 725-M-89 dated
December 1, 2005;42 (d) the RTCs Order in Civil Case No. 725-M-89 dated
December 20, 2005;43 (e) the RTCs Order in Civil Case No. 725-M-89 dated June
7, 2006;44 (f) HOLCIMs Manifestation and Motion (for Ocular Inspection) in Civil
Case No. 725-M-89 dated February 21, 2006 and its attachments;45 (g) the
Memorandum of Agreement between Republic Cement Corporation and Spouses
Juan and Maria Bernabe dated December 1, 1991;46 (h) the Price Monitor of the
Department of Environment and Natural Resources (DENR) on the price per metric
ton of non-metallic mines;47 and (i) the Special Power of Attorney executed by
Ligaya and Liesell appointing Lowell as their attorney-in-fact.48

From the foregoing, the Court finds the same substantially compliant with the
requirements of Section 4, Rule 45 of the 1997 Rules of Civil Procedure. All of the
pertinent documents necessary for the Court to appreciate the circumstances
surrounding the case and to resolve the issues at hand were attached. Furthermore,
the parties subsequent comment and reply have sufficiently provided the Court the
needed information regarding the proceedings and acts of the trial court during the
execution of the final and executory decision of this Court in G.R. No. 120004 which
are the matters being questioned. In Shimizu Philippines Contractors, Inc. v.
Magsalin,49the Court proceeded to give due course to the petition when it found the
same and its attachments sufficient for the Court to access and resolve the
controversy.50

On the other hand, the petitioners claim that HOLCIMs petition for certiorari in the
CA failed to comply with the rules on Verification and Certification of Non-Forum
Page 35 of 675

Shopping because the latter did not secure and/or attach a certified true copy of a
board resolution authorizing any of its officers to file said petition.51 Thus, the CA
should have dismissed outright HOLCIMs petition before it.

The general rule is that a corporation can only exercise its powers and transact its
business through its board of directors and through its officers and agents when
authorized by a board resolution or its bylaws. The power of a corporation to sue
and be sued is exercised by the board of directors. The physical acts of the
corporation, like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate bylaws or by a specific act of the board.
Absent the said board resolution, a petition may not be given due course.52

In Bank of the Philippine Islands v. Court of Appeals,53 the Court held that the
application of the rules must be the general rule, and the suspension or even mere
relaxation of its application, is the exception. This Court may go beyond the strict
application of the rules only on exceptional cases when there is truly substantial
compliance with the rule.54

In the case at bar, HOLCIM attached to its Petition for Certiorari before the CA a
Secretarys Certificate authorizing Mr. Paul M. OCallaghan (OCallaghan), its
Chief Operating Officer, to nominate, designate and appoint the corporations
authorized representative in court hearings and conferences and the signing of court
pleadings.55 It also attached the Special Power of Attorney dated June 9, 2006,
signed by OCallaghan, appointing Sycip Salazar Hernandez & Gatmaitan and/or
any of its lawyers to represent HOLCIM;56 and consequently, the Verification and
Certification of Non Forum Shopping signed by the authorized representative.57 To
be sure, HOLCIM, in its Reply filed in the CA, attached another Secretarys
Certificate, designating and confirming OCallaghans power to authorize Sycip
Salazar Hernandez & Gatmaitan and/or any of its lawyers to file for and on behalf
of HOLCIM, the pertinent civil and/or criminal actions in Civil Case No. 725-M-89
pending before the RTC, including any petition to be filed with the CA and/or the
Supreme Court in connection with the Orders dated December 1, 2005, December
20, 2005 and June 7, 2006.58

The foregoing convinces the Court that the CA did not err in admitting HOLCIMs
petition before it. HOLCIM attached all the necessary documents for the filing of a
petition for certiorari before the CA. Indeed, there was no complete failure to attach
a Certificate of Non-Forum Shopping. In fact, there was such a certificate. While the
board resolution may not have been attached, HOLCIM complied just the same
Page 36 of 675

when it attached the Secretarys Certificate dated July 17, 2006, thus proving that
OCallaghan had the authority from the board of directors to appoint the counsel to
represent them in Civil Case No. 725-M-89. The Court recognizes the compliance
made by HOLCIM in good faith since after the petitioners pointed out the said
defect, HOLCIM submitted the Secretarys Certificate dated July 17, 2006,
confirming the earlier Secretarys Certificate dated June 9, 2006. For the Court, the
ruling in General Milling Corporation v. NLRC59 is applicable where the Court
rendered a decision in favor of the petitioner despite its failure to attach the
Certification of Non- Forum Shopping. The Court held that there was substantial
compliance when it eventually submitted the required documents. Substantial justice
dictates that technical and procedural rules must give way because a deviation from
the rigid enforcement of the rules will better serve the ends of justice. The Court
ratiocinated:

The rules of procedure are intended to promote, rather than frustrate, the ends of
justice, and while the swift unclogging of court dockets is a laudable objective, it,
nevertheless, must not be met at the expense of substantial justice. Technical and
procedural rules are intended to help secure, not suppress, the cause of justice and a
deviation from the rigid enforcement of the rules may be allowed to attain that prime
objective for, after all, the dispensation of justice is the core reason for the existence
of courts.60 (Citation omitted)

HOLCIMs filing in the CA of a petition for certiorari under Rule 65 of the 1997
Rules of Civil Procedure is proper.

The petitioners also argue that the CA gravely erred when it did not dismiss
HOLCIMs petition for certiorari on the ground of improper remedy. The petitioners
contend that HOLCIM should have filed an appeal because when the RTC allowed
the petitioners to adduce evidence to determine the exact amount to be paid by
HOLCIM during the execution stage, it was implementing the dispositive portion of
the decision of the CA in CA-G.R. CV No. 40140 as affirmed by the Court. As ruled
by the trial court, a case in which an execution has been issued is regarded as still
pending so that all proceedings on the execution are proceedings in the suit.
Accordingly, the court that rendered the judgment maintains a general supervisory
control over its process of execution, and this power carries with it the right to
determine questions of fact and law, which may be involved in the execution.61 Thus,
for the petitioners, the RTC neither acted in excess of its jurisdiction nor with grave
abuse of discretion, which would call for HOLCIM to file a petition for certiorari.62
Page 37 of 675

The Court disagrees with the petitioners mental acrobatics. Their arguments are
contrary to Section 1(f), Rule 41 of the Rules of Court, which provides:

Sec. 1. Subject of appeal.An appeal may be taken from a judgment or final order
that completely disposes of the case, or of a particular matter therein when declared
by these Rules to be appealable.

No appeal may be taken from:

xxxx

(f) an order of execution;

xxxx

In all the above instances where the judgment or final order is not appealable, the
aggrieved party may file an appropriate special civil action under Rule 65.

The foregoing provision is explicit that no appeal may be taken from an order of
execution and a party who challenges such order may file a special civil action for
certiorari under Rule 65 of the Rules of Court.63 An order of execution, when issued
with grave abuse of discretion amounting to lack or excess of jurisdiction, may be
the subject of a petition for certiorari under Rule 65.64 Thus, HOLCIM did not err in
filing a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure.

HOLCIM is not estopped to question the jurisdiction of the trial court to conduct a
hearing and to accept evidence on the exact amount of royalty HOLCIM should pay
the petitioners.

The petitioners argue that HOLCIM is estopped from questioning the jurisdiction of
the RTC in conducting a hearing on the exact amount of royalty that HOLCIM must
pay the petitioners. They allege that: (a) HOLCIM expressed willingness to pay the
royalty to whoever would be adjudged the rightful owner of the subject land; (b)
HOLCIM and de Guzman did not appear in the hearing nor oppose the Omnibus
Motion dated September 28, 2004; (c) HOLCIM did not file any opposition or
comment on the petitioners Formal Offer of Evidence, Supplement to the Motion
for Execution and Motion for Alias Writ of Execution; and (d) HOLCIM is now the
new owner of de Guzmans property. As such, it has acquired the rights, interests
and liabilities of de Guzman. The petitioners insist that HOLCIM must not only
Page 38 of 675

account for the royalty it paid de Guzman, but it must also turn over said payments
to the petitioners.65

HOLCIM counter-argues that when it expressed willingness to pay the royalties to


whoever would be declared the rightful owner of the subject land, it simply
manifested its good faith in fulfilling its obligations. It adds that the petitioners and
HOLCIM entered into an Agreement regarding the amount of royalty it should pay
to the landowner; and subsequently, the petitioners voluntarily accepted and retained
the amount of P694,184.22 paid by HOLCIM. In fact, HOLCIM stresses that the
said amount was more than what was stipulated in the Agreement. HOLCIM also
asserts that jurisdiction is conferred by law, and not by laches, estoppel or by
agreement among the parties and such lack of jurisdiction may be raised at any stage
of the proceedings.66 Furthermore, HOLCIM avers that it is even the DENR panel
of arbitrators which has jurisdiction over the case pursuant to Section 77 of the
Philippine Mining Act of 1995.67 Lastly, HOLCIM claims that it eventually acquired
de Guzmans property, maintaining that the said property did not overlap with
Esguerras property. Thus, HOLCIMs ownership and quarrying operations on lands
outside the disputed area would have no bearing whatsoever on the petitioners claim
for royalties on extractions done within the disputed area. HOLCIM also asseverates
that the obligation to turn over any royalty paid to de Guzman is not a real obligation
which attaches to the disputed area or to the land itself or which follows the property
to whoever might subsequently become its owner; rather, HOLCIM argues that the
obligation is purely a personal obligation of de Guzman and thus, not transferable to
HOLCIM.

What is clear is that the present case emanates from the petitioners desire to
implement the CA decision in CA-G.R. CV No. 40140 which was affirmed by the
Court in the Decision of December 27, 2002 in G.R. No. 120004. At the execution
stage, the only thing left for the trial court to do is to implement the final and
executory judgment; and the dispositive portion of the decision controls the
execution of judgment. The final judgment of this Court cannot be altered or
modified, except for clerical errors, misprisions or omissions.68

In the instant case, the CAs decision which this Court affirmed in G.R. No. 120004
rendered, among others, the following judgment:

(a) Insofar as then defendant-appellee de Guzman is concerned, the CA


declared OCT No. P-3876 in her possession null and void in relation to the
Page 39 of 675

disputed area of 38,641 sq m; the same CAs decision subsequently ordered


de Guzman

[i] to segregate at her expense the disputed area of 38,641 sq m from


OCT No. P-3876;

[ii] to surrender her owners copy of OCT No. P-3876 to the Register
of Deeds of Bulacan;

[iii] to immediately vacate and surrender to then plaintiff-appellant


Esguerra possession of the disputed area;

[iv] to pay and turn over to plaintiff-appellant Esguerra all the amount
she received from her co-defendant Hi-Cement Corporation (now
HOLCIM) as compensation or royalty for marbles extracted or quarried
from the disputed area of 38,451 sq m beginning March 23, 1990; and

[v] to pay the costs.

(b) Insofar as HOLCIM is concerned, the CAs decision ordered HOLCIM

[i] to immediately cease and desist from quarrying or extracting marble


from the disputed area; and

[ii] to make an accounting of the royalty it paid to de Guzman.

Indeed, the final judgment does not direct HOLCIM nor its predecessor Hi-Cement
to pay a certain amount to Esguerra and his heirs. What was required from HOLCIM
to do was merely to account for the payments it made to de Guzman. Apparently,
this was not enforced. It may be deduced from the records that when the petitioners
filed the Omnibus Motion dated September 28, 2004, they asked for the examination
of de Guzman and Hi-Cement (HOLCIM) under Sections 36 and 37 of Rule 39 of
the Rules of Court. This motion was subsequently granted by the trial court.

Sections 3669 and 3770 of Rule 39 of the Rules of Court are resorted to only when the
judgment remains unsatisfied, and there is a need for the judgment obligor to appear
and be examined concerning his property and income for their application to the
unsatisfied amount in the judgment. In the instant case, the decision in CA-G.R. CV
No. 40140 as affirmed by the Court calls on HOLCIM to simply make an accounting
of the royalty paid to de Guzman. Unfortunately, the trial court, instead of facilitating
Page 40 of 675

the accounting of payments made by HOLCIM to de Guzman, proceeded to adduce


evidence on the amount of limestone extracted from the disputed area and imposed
the monetary liability on HOLCIM.

It is rather unfortunate that HOLCIM did not register a whimper upon petitioners
presentation of evidence.1wphi1 Notwithstanding, it cannot be denied that the trial
court committed grave abuse of discretion in issuing the questioned orders without
giving HOLCIM the chance to be heard. Indeed, when the decision has been
rendered unenforceable on account of the undetermined amount to be awarded, it
was incumbent upon the trial court to receive evidence from both parties to
determine the exact amount due to the petitioners.71 Since HOLCIM was not given
an opportunity to rebut the petitioners evidence, considering that the formers
Manifestation and Motion for Ocular Inspection was denied, justice will be better
served if the trial court determines first the existence of documents relative to
HOLCIMs payments made to de Guzman, and if the same is not done, to receive
further evidence, this time, from both parties. It must be emphasized, however, that
the evidence to be adduced here is in relation to the amount of royalty paid to de
Guzman by HOLCIM for marbles extracted from the disputed area of 38,451 sq m
beginning March 23, 1990 up to the time HOLCIM ceased to operate in the subject
area. In the event that the petitioners claim is beyond the subject area and period,
and HOLCIM denies such indebtedness, the governing rule should be Section 43,
Rule 39 of the Rules of Court, to wit:

SEC. 43. Proceedings when indebtedness denied or another person claims the
property. If it appears that a person or corporation, alleged to have property of the
judgment obligor or to be indebted to him, claims an interest in the property adverse
to him or denies the debt, the court may authorize, by an order made to that effect,
the judgment obligee to institute an action against such person or corporation for the
recovery of such interest or debt, forbid a transfer or other disposition of such interest
or debt within one hundred twenty (120) days from notice of the order, and may
punish disobedience of such order as for contempt. Such order may be modified or
vacated at any time by the court which issued it, or by the court in which the action
is brought, upon such terms as may be just. (Emphasis ours)

Pursuant to this Rule, in the examination of a person, corporation, or other juridical


entity who has the property of such judgment obligor or is indebted to him (Rule 39,
Section 37), and such person, corporation, or juridical entity denies an indebtedness,
the court may only authorize the judgment obligee to institute an action against such
person or corporation for the recovery of such interest or debt. Nothing in the Rules
Page 41 of 675

gives the court the authority to order such person or corporation to pay the judgment
obligee and the court exceeds its jurisdiction if it orders the person who denies the
indebtedness to pay the same. In Atilano II v. Asaali,72 the Court held that an
"[e]xecution of a judgment can only be issued against one who is a party to the
action, and not against one who, not being a party thereto, did not have his day in
court. Due process dictates that a court decision can only bind a party to the litigation
and not against innocent third parties."73

Finally, the Court does not agree with petitioners argument that the person of de
Guzman is "now merged in the person of HOLCIM or that HOLCIM has assumed
her personal liability or the judgment rendered against her."74Nothing in the records
shows that HOLCIM admitted of assuming all the liabilities of de Guzman prior to
the sale of the subject property. HOLCIM, however, expresses its willingness to pay
royalty only to the rightful owner of the disputed area. Thus, in the event that the
amount paid by HOLCIM to de Guzman has been proven, de Guzman is ordered to
turn over the payment to the petitioners.75 If the petitioners insist that HOLCIM
owed them more than what it paid to de Guzman, the petitioners cannot invoke the
CAs decision which was affirmed by the Court in G.R. No. 120004 to ask for
additional royalty. As earlier discussed, this must be addressed in a separate action
for the purpose. All told, the Court finds no reversible error with the decision of the
CA in nullifying the orders of the RTC for having been issued in excess of its
jurisdiction.

WHEREFORE, the Decision dated August 31, 2007 and the Resolution dated April
14, 2008 of the Court of Appeals in CA-G.R. SP No. 94838 are hereby AFFIRMED.

SO ORDERED.
Page 42 of 675

SAN MIGUEL BUKID G.R. No. 153653


HOMEOWNERS ASSOCIATION,
INC., herein represented by its
PRESIDENT, MR. EVELIO Present:
BARATA,
Petitioner, YNARES-SANTIAGO, J.,
Chairperson,
- versus - CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
THE CITY OF MANDALUYONG, PERALTA, JJ.
represented by the HON. MAYOR
BENJAMIN ABALOS, JR.; A.F.
CALMA GENERAL Promulgated:
CONSTRUCTION, represented by
its President, ARMENGO F. October 2, 2009
CALMA,
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

This resolves the petition for certiorari under Rule 65 of the Rules of Court, seeking
nullification of the Resolutions of the Court of Appeals (CA) dated April 16,
2002[1] and May 14, 2002,[2] in CA-G.R. SP No. 69827, dismissing the petition
for certiorari filed by herein petitioner.
The undisputed facts are as follows.

Petitioner San Miguel Bukid Homeowners Association, Inc. (formerly known as


Bukid Neighborhood Landless Association), an association of urban poor dwellers
of San Miguel Bukid Compound, Plainview, Mandaluyong City, filed with the
Regional Trial Court (RTC) of Mandaluyong City a Complaint[3] for specific
performance and damages against respondents City of Mandaluyong (City) and A.F.
Page 43 of 675

Calma General Construction (Calma). It is alleged therein that pursuant to the Citys
Land for the Landless Program, petitioner and the City entered into a Memorandum
of Agreement (MOA), whereby the City purchased lots and then transferred the
same to petitioner with a first real estate mortgage in favor of the City. Subsequently,
the City and Calma entered into a Contract Agreement for the latter to construct row
houses and medium-rise buildings on the aforementioned lots within 540 calendar
days for the benefit of petitioners members. In June 1995, Calma began construction,
but in June 1996, work on the project was stopped.The period of 540 days elapsed
sometime in November 1996, but the houses and buildings were not yet
completed. Petitioners letters sent to the Mayor of the City requesting an update on
the project remained unanswered. Hence, petitioner filed the complaint praying that
the City and Calma be ordered to perform their respective undertakings and
obligations under the Contract Agreement and to pay petitioner attorneys fees,
exemplary damages and litigation expenses.

The City filed an Answer[4] within the extended period granted by the trial court. The
Citys main defense was that the MOA had already been abrogated due to petitioners
failure to secure a loan from the Home Mortgage and Finance Corporation, and that
petitioner had no standing or personality to institute the action, as it was not a party
to the Contract Agreement.
Calma did not file an Answer.
On September 12, 2000, petitioner filed a Motion to Declare Defendant in
Default. It pointed out that the lawyer who signed the Citys Answer was a private
counsel, not the Office of the City Legal Officer which, according to petitioner, was
the only office authorized under Section 248 of the Local Government Code to
represent the local government unit in all civil actions. Thus, petitioner prayed that
the City be declared in default on the ground that the Citys Answer was a mere scrap
of paper and should not be admitted in court for being an unsigned pleading, the
same not having been signed and filed by a duly authorized representative of the
City.
In its Order[5] dated June 4, 2001, the RTC denied petitioners motion, ruling
that a party should only be declared in default in cases showing clear obstinate
refusal or inordinate neglect in complying with the Orders of the court. Petitioners
Page 44 of 675

motion for reconsideration of said order was also denied per Order[6] dated January
7, 2002.

The matter was elevated by petitioner to the CA via a petition


for certiorari. However, in the assailed Resolution[7] dated April 16, 2002, the CA
dismissed the petition outright because the person who signed the
Verification/Certification of Non-Forum Shopping thereof did not appear to be
authorized by petitioner. Petitioner filed a motion for reconsideration but the same
was denied in the second assailed Resolution[8] dated May 14, 2002.
Hence, petitioner came to this Court seeking the issuance of a writ
of certiorari against the CA, on the following grounds:

I. THE HONORABLE COURT OF APPEALS COMMITTED


GRAVE ABUSE OF DISCRETION WHEN IT HELD THAT THE
REPRESENTATIVE OF THE PETITIONER WHO SIGNED THE
VERIFICATION/CERTIFICATION OF NON-FORUM SHOPPING
DID NOT APPEAR TO BE DULY AUTHORIZED TO DO SO,
WHEN IN FACT THE SAID REPRESENTATIVE WAS DULY
AUTHORIZED BY THE PETITIONER CORPORATIONS BOARD
OF DIRECTORS.

II. THE HONORABLE COURT OF APPEALS ERRED IN


APPLYING THE RULING IN BA SAVINGS BANK VS. SIA (336
SCRA 484) AGAINST THE PETITIONER AND DISMISSED THE
PETITION FOR CERTIORARI.

III. THE HONORABLE COURT OF APPEALS COMMITTED


GRAVE ABUSE OF DISCRETION IN DENYING THE MOTION
FOR RECONSIDERATION WHEN IT HELD THAT THE LACK OF
CERTIFICATION AGAINST FORUM SHOPPING IS GENERALLY
NOT CURABLE BY THE SUBMISSION THEREOF AFTER THE
FILING OF THE PETITION, WHEN IN TRUTH, WHAT WAS
SUBMITTED BY PETITIONER WITH THE MOTION FOR
RECONSIDERATION WAS NOT A CERTIFICATION AGAINST
FORUM SHOPPING BUT A SECRETARYS CERTIFICATE OF A
Page 45 of 675

BOARD RESOLUTION CONFIRMING AND RATIFYING THE


AUTHORITY OF THE REPRESENTATIVE TO ACT AS SUCH.[9]

The petition is doomed to fail.

Section 1, Rule 65 of the Rules of Court states that certiorari may be resorted
to when there is no appeal, nor any plain, speedy, and adequate remedy in the
ordinary course of law. Thus, in Abedes v. Court of Appeals,[10] the Court held that:

x x x for a petition for certiorari or prohibition to be granted, it must


set out and demonstrate, plainly and distinctly, all the facts essential to
establish a right to a writ. The petitioner must allege in his petition
and has the burden of establishing facts to show that any other
existing remedy is not speedy or adequate and that (a) the writ is
directed against a tribunal, board or officer exercising judicial or quasi-
judicial functions; (b) such tribunal, board or officer has acted without
or in excess of jurisdiction, or with grave abuse of discretion amounting
to excess or lack of jurisdiction; and, (c) there is no appeal or any
plain, speedy and adequate remedy in the ordinary course of
law. These matters must be threshed out and shown by
petitioner.[11]
The Resolutions of the CA which petitioner seeks to nullify are orders of
dismissal. In Magestrado v. People,[12] the Court explained that an order of dismissal
is a final order which is a proper subject of an appeal, not certiorari. This was
reiterated in Pasiona v. Court of Appeals,[13] where it was emphasized that if what is
being assailed is a decision, final order or resolution of the CA, then appeal to this
Court is via a verified petition for review on certiorari under Rule 45 of the Rules
of Court. In cases where an appeal was available, certiorari will not prosper, even if
the ground therefor is grave abuse of discretion.[14] The existence and availability of
the right of appeal are antithetical to the availability of the special civil action
for certiorari, although where it is shown that the appeal would be inadequate, slow,
insufficient, and will not promptly relieve a party from the injurious effects of the
order complained of, or where appeal is inadequate and ineffectual, the extraordinary
writ of certiorari may be granted.[15]
Clearly, since the present case involves a final order of dismissal issued by
the CA, the proper course of action would have been to file a petition for review
Page 46 of 675

on certiorari under Rule 45. Although there are exceptions to the general rule,
petitioner utterly failed to allege and prove that the extraordinary remedy of the writ
of certiorari should be granted, because an appeal, although available, would be
inadequate, insufficient and not speedy enough to address the urgency of the
matter. There is nothing in the petition to show that this case qualifies as an
exception to the general rule. The circumstances prevailing in this case reveal that
whatever grievance petitioner may be suffering from the dismissal of its petition
with the CA could be properly addressed through a petition for review on certiorari.
On the ground alone that petitioner resorted to an improper remedy, the
present petition is already dismissible and undeserving of the Courts
attention. However, even on the merits, the petition must be struck down.

In Fuentebella v. Castro,[16] the Court categorically stated that if the real party-
in-interest is a corporate body, an officer of the corporation can sign the
certification against forum shopping so long as he has been duly authorized by
a resolution of its board of directors.[17] In this case, the Certificate of Board
Resolution attached to the petition for certiorari filed with the CA reads as follows:

x x x in a meeting of the Board of Directors of the SAN


MIGUEL BUKID HOMEOWNERS ASSOCIATION, held on 7
November 1999, the following resolution was unanimously adopted by
the General Assembly of the Association:

RESOLVED, that the ASSOCIATION re-file its Complaint for


Specific Performance with Damages against the CITY
GOVERNMENT OF MANDALUYONG and A.F. CALMA
GENERAL CONSTRUCTION CORPORATION in order to
enforce their obligations under the CONTRACT AGREEMENT
for a housing project in favor of the ASSOCIATION;

RESOLVED, further, that MR. EVELIO D. BARATA,


President of the ASSOCIATION, be authorized to initiate,
sign, file and prosecute the COMPLAINT.[18]
Page 47 of 675

Evidently, petitioner only authorized its President, Evelio Barata, to initiate,


sign, file and prosecute the Complaint for specific performance.

Certiorari, as a special civil action, is an original action invoking the original


jurisdiction of a court to annul or modify the proceedings of a tribunal, board or
officer exercising judicial or quasi-judicial functions.[19] It is an original and
independent action that is not part of the trial or the proceedings on the complaint
filed before the trial court.[20] The petition for certiorari before the CA is, therefore,
a separate and distinct action from the action for specific performance instituted
before the RTC, as the writ of certiorari being prayed for is directed against the
judicial or quasi-judicial body, not against the private parties in the original action
for specific performance. Such being the case, the November 7 1999 Resolution of
the Board of Directors of petitioner association is not and cannot be considered as
an authorization for its President, Evelio Barata, to initiate, sign, file and prosecute
another case for the special civil action of certiorari. The CA was, thus, correct in
dismissing the petition for lack of authority of Evelio Barata to sign the Certification
of Non-Forum Shopping in representation of petitioner.

The submission of a Secretarys Certificate with the Motion for


Reconsideration is also insufficient to cure the initial defect. Said Certificate stated
that petitioners Board of Trustees approved a Resolution at a meeting held on April
7, 2002, confirming and ratifying the authority of Mr. Barata to sign all necessary
papers for the petition for certiorari.Note that the petition was filed on March 26,
2002, or before the date of said Resolution. There is no certification as to when
petitioners Board of Trustees originally granted Mr. Barata authority to show that as
of the date of the filing of the petition for certiorari, Mr. Barata had been authorized
to perform such acts. Moreover, as ruled in Tible and Tible Company, Inc. v. Royal
Savings and Loan Association,[21] to wit:
In Athena Computers, Inc. v. Reyes, the Court stressed
that certiorari, being an extraordinary remedy, the party who seeks
to avail of the same must strictly observe the rules laid down by the
law. x x x.

xxxx
Page 48 of 675

x x x subsequent compliance does not ipso facto entitle a party to a


reconsideration of the dismissal order. As the Court aptly observed
in Batoy v. Regional Trial Court, Br. 50, Loay, Bohol:

x x x the requirement under Administrative Circular No.


04-94 for a certificate of non-forum shopping is
mandatory. The subsequent compliance with said
requirement does not excuse a partys failure to
comply therewith in the first instance. In those cases
where this Court excused the non-compliance with the
requirement of the submission of a certificate of non-
forum shopping, it found special
circumstances or compelling reasons which made the
strict application of said Circular clearly unjustified or
inequitable. x x x [22] (Emphasis supplied)

As in the present case, such special circumstances or compelling reasons are absent.

IN VIEW OF THE FOREGOING, the petition is DISMISSED for lack of


merit. The Resolutions of the Court of Appeals in CA-G.R. SP No. 69827,
dated April 16, 2002 and May 14, 2002, are AFFIRMED.

SO ORDERED.

MID-PASIG LAND DEVELOPMENT G.R. No. 162924


CORPORATION,
Present:
Petitioner,
Page 49 of 675

CARPIO, J.,*
- versus - CORONA,
Chairperson,
VELASCO, JR.,
NACHURA, and
MARIO TABLANTE, doing business PERALTA, JJ.
under the name and style ECRM
ENTERPRISES;ROCKLAND
CONSTRUCTION COMPANY;
LAURIE LITAM; and MC HOME
DEPOT, INC.,
Respondents. Promulgated:

February 4, 2010

x-----------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Assailed in the instant petition are the two (2) Resolutions[1] of the Court of
Appeals (CA) dated November 20, 2003 and March 22, 2004, dismissing the
petition for certiorari before it on technical grounds and denying the motion for
reconsideration thereof, respectively.
Page 50 of 675

The background facts are as follows:

Petitioner is the registered owner of a piece of land situated in Pasig City,


bounded by Meralco Avenue, Ortigas Avenue, Doa Julia Vargas Avenue, and Valle
Verde Subdivision. On December 6, 1999, petitioner, represented by its Chairman
and President, Ronaldo Salonga, and ECRM Enterprises, represented by its
proprietor, Mario P. Tablante, executed an agreement whereby the former would
lease to the latter an area, approximately one (1) hectare, of the aforesaid land, for
a period of three (3) months, to be used as the staging area for the Home and Garden
Exhibition Fair. On March 6, 2000, the date of the expiration of the Lease
Agreement, Tablante assigned all his rights and interests under the said agreement
to respondents Laurie M. Litam and/or Rockland Construction Company, Inc.
(Rockland) under a Deed of Assignment of the same date. Petitioner eventually
learned that respondent Tablante had executed a Contract of Lease with respondent
MC Home Depot, Inc. on November 26, 1999 over the same parcel of
land. Thereafter, respondent MC Home Depot, Inc. constructed improvements on
the land and subdivided the area into fifty-nine (59) commercial stalls, which it
leased to various entities. Upon the expiration of the lease on March 6, 2000,
petitioner demanded that respondents vacate the land. A final demand was made in
a letter dated December 20, 2000.[2]

In order to forestall ejectment from the premises, respondent Rockland filed a


case for Specific Performance with the Regional Trial Court (RTC), Branch
266, Pasig City, on January 11, 2001, compelling petitioner to execute a new lease
contract for another three (3) years, commencing in July 2000. This was docketed
as Civil Case No. 68213.Petitioner moved to dismiss the complaint on the ground
that it was anticipatory in nature.
Page 51 of 675

Consequently, on August 22, 2001, petitioner filed Civil Case No. 8788 for
unlawful detainer against herein respondents, raffled to the Municipal Trial Court
(MTC), PasigCity, Branch 70. Simultaneously, petitioner filed a supplemental
motion to dismiss Civil Case No. 68213, on the ground of litis pendentia. Petitioners
motion to dismiss was denied. The denial was questioned and eventually elevated to
the Supreme Court.[3]

Meantime, on April 29, 2002, the MTC rendered judgment in the unlawful
detainer (ejectment) case. In the main, the trial court ruled that the issue did not
involve material or physical possession, but rather, whether or not ECRM had the
right to exercise an option to renew its lease contract. The MTC stated that,
considering that this issue was incapable of pecuniary estimation, jurisdiction over
the case was vested in the RTC. The trial court, therefore, disposed, as follows:
WHEREFORE, judgment is hereby rendered DISMISSING the
complaint for lack of merit. In the meantime, the plaintiff is hereby
ordered to pay the defendants attorneys fees and expenses of litigation
in the amount of TWENTY THOUSAND PESOS (P20,000.00).[4]

On appeal, the RTC, Pasig City, Branch 160, affirmed in toto. In its
decision dated July 10, 2003, the RTC ruled that:

Relative to the issue raised by the appellant that the lower court
erred in finding it had no jurisdiction over the subject matter of this
case as the question of whether or not ECRM under the provisions of
the lease agreement (pars. 3 and 13) has the right to exercise an option
to renew its lease contract is one incapable of pecuniary estimation and
therefore jurisdiction is vested in the Regional Trial Court. Republic
Act No. 7691 grants Metropolitan Trial Courts the exclusive
jurisdiction over cases of forcible entry and unlawful detainer. Since it
has been sufficiently established under the facts obtaining that the
contract of lease has been renewed before the expiration of the lease
Page 52 of 675

period, and the appellant has consented to the renewal and assignment
of the lease, it necessarily follows that the issue on whether the lower
court erred in finding that it did not have jurisdiction over the subject
matter raised by the appellant, deserves scant consideration and this
court need not delve into it anymore.[5]

A petition for certiorari was consequently filed with the CA.

In the assailed resolution dated November 20, 2003, the CA resolved to


dismiss the petition on the following grounds:

1) The verification and certification against non-


forum shopping was signed by a certain Antonio A. Merelos as
General Manager of the petitioner-corporation without attaching
therewith a Corporate Secretarys certificate or board resolution that he
is authorized to sign for and on behalf of the petitioner; and

2) Lack of pertinent and necessary documents which


are material portions of the record as required by Section 2, Rule 42 of
the Rules of Civil Procedure.[6]

The motion for reconsideration was denied;[7] hence, the instant petition
assigning the following errors:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR


IN HOLDING THAT THE VERIFICATION AND
CERTIFICATION AGAINST FORUM-SHOPPING IN THE
PETITION FAILED TO ATTACH THE BOARD RESOLUTION
SHOWING THE AUTHORITY OF THE AFFIANT.
Page 53 of 675

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR


IN HOLDING THAT THE PETITION LACKED THE PERTINENT
AND NECESSARY DOCUMENTS REQUIRED BY THE RULES.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR


IN DISMISSING THE PETITION THUS EFFECTIVELY
UPHOLDING THE DECISION OF THE REGIONAL TRIAL
COURT, TO WIT: (a) THAT THE LEASE AGREEMENT WAS
UNILATERALLY RENEWED AND THAT PETITIONER IS
ESTOPPED FROM DENYING SUCH UNILATERAL RENEWAL;
(b) THAT RESPONDENTS TABLANTE/ECRM, ROCKLAND
AND MC HOME DEPOT COULD VALIDLY OCCUPY THE
PROPERTY IN THE ABSENCE OF ANY VALID LEASE
AGREEMENT CONSENTED TO BY PETITIONER; (c)
PETITIONER [IS] LIABLE FOR ATTORNEYS FEES AND COSTS
OF SUIT.[8]

The petition is granted.

In Cagayan Valley Drug Corporation v. Commissioner of Internal


Revenue,[9] the Court had occasion to explain that:

It must be borne in mind that Sec. 23, in relation to Sec. 25 of the


Corporation Code, clearly enunciates that all corporate powers are
exercised, all business conducted, and all properties controlled by the
board of directors. A corporation has a separate and distinct personality
from its directors and officers and can only exercise its corporate
powers through the board of directors. Thus, it is clear that an
individual corporate officer cannot solely exercise any corporate power
Page 54 of 675

pertaining to the corporation without authority from the board of


directors. This has been our constant holding in cases instituted by a
corporation.

In a slew of cases, however, we have recognized the authority of


some corporate officers to sign the verification and certification against
forum shopping. In Mactan-Cebu InternationalAirport Authority v.
CA, we recognized the authority of a general manager or acting general
manager to sign the verification and certificate against forum shopping;
x x x.

In sum, we have held that the following officials or employees


of the company can sign the verification and certification without
need of a board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the General Manager
or Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case.

While the above cases do not provide a complete listing of


authorized signatories to the verification and certification required by
the rules, the determination of the sufficiency of the authority was done
on a case to case basis. The rationale applied in the foregoing cases is
to justify the authority of corporate officers or representatives of the
corporation to sign the verification or certificate against forum
shopping, being in a position to verify the truthfulness and correctness
of the allegations in the petition.[10]

From the foregoing, it is thus clear that the failure to attach the Secretarys
Certificate, attesting to General Manager Antonio Mereloss authority to sign the
Verification and Certification of Non-Forum Shopping, should not be considered
Page 55 of 675

fatal to the filing of the petition. Nonetheless, the requisite board resolution was
subsequently submitted to the CA, together with the pertinent
documents.[11] Considering that petitioner substantially complied with the rules, the
dismissal of the petition was, therefore, unwarranted. Time and again, we have
emphasized that dismissal of an appeal on a purely technical ground is frowned upon
especially if it will result in unfairness. The rules of procedure ought not to be
applied in a very rigid, technical sense for they have been adopted to help secure, not
override, substantial justice. For this reason, courts must proceed with caution so as
not to deprive a party of statutory appeal; rather, they must ensure that all litigants
are granted the amplest opportunity for the proper and just ventilation of their causes,
free from the constraint of technicalities.[12]

After a finding that the CA erred in dismissing the petition before it, a remand of the
case is in order. However, a perusal of the records reveals that this is no longer
necessary inlight of relevant developments obtaining in the case at bar.

Petitioner, in its Memorandum dated October 28, 2005, alleged that respondents
possessory claims had lapsed and, therefore, had become moot and academic.
Respondent Rockland prayed that a three-year lease period be granted to it in order
that it would be able to plan its activities more efficiently. Since the claimed lease
contract had already expired as of July or August 2003, there appears no reason why
respondents should continue to have any claim to further possession of the
property.[13]

Respondent Rockland also stated in its Memorandum dated March 16, 2006
that it was no longer in possession of the subject property considering that:

50. In a Resolution dated 17 September 2004, in the case


of Rockland Construction Company, Inc. vs. Mid-Pasig Land
Development Corporation, et al., docketed as SCA No. 2673, and
the Omnibus Order dated 12 November 2004, affirming the
Page 56 of 675

aforesaid Resolution, Branch 67 Pasig City Regional Trial Court


Presiding Judge Mariano M. Singzon awarded possession (albeit
erroneously) of subject property to Pasig Printing Corporation, an
intervenor in the SCA case.

51. At present, petitioner does not have a cause of action


against herein respondent Rockland. Respondent is not unlawfully
withholding possession of the property in question as in
fact respondent is not in possession of the subject property. The
issue of possession in this ejectment case has therefore been
rendered moot and academic.[14]

This allegation was confirmed by respondent MC Home Depot, Inc. in its


Comment/Memorandum dated May 22, 2007 submitted to the Court. It stated
therein that the passage of time has rendered the issue of possession moot and
academic with respect to respondent Rockland, as the three-year period has long
been expired in 2003.[15]Furthermore, respondent MC Home Depot, Inc. asserts that
it is in rightful possession of the land on the strength of a Memorandum of
Agreement dated November 22, 2004 between the latter and Pasig Printing
Corporation. By petitioners admission that while it remains the registered owner of
the land, possession of the same had been adjudicated in favor of Pasig Printing
Corporation, another entity without any contractual relationship with petitioner, on
the strength of an Order from the RTC of Pasig City. Considering that Pasig Printing
Corporation has the jus possessionis over the subject property, it granted the MC
Home Depot, Inc. actual occupation and possession of the subject property for a
period of four (4) years, renewable for another four (4) years upon mutual agreement
of the parties.[16]

WHEREFORE, the petition is GRANTED. The assailed Resolutions of the


Court of Appeals are REVERSED and SET ASIDE. However, in view of the
developments which have rendered the issue of the right of possession over the
Page 57 of 675

subject property moot and academic, the main case is hereby considered CLOSED
AND TERMINATED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 182571 September 2, 2013

LIGAYA ESGUERRA, LOWELL ESGUERRA AND LIESELL


ESGUERRA, PETITIONERS,
vs.
HOLCIM PHILIPPINES, INC., RESPONDENT.

DECISION

REYES, J.:

The present petition is an offshoot of our final and executory decision promulgated
on December 27, 2002 in G.R. No. 120004, entitled "Iluminada de Guzman v. Court
of Appeals and Jorge Esguerra."1 Ligaya Esguerra (Ligaya), Lowell Esguerra
(Lowell), and Liesell Esguerra (Liesell) (petitioners) are heirs of Jorge Esguerra
(Esguerra) while herein respondent, HOLCIM Philippines, Inc. (HOLCIM) is the
successor-in-interest of Iluminada de Guzman (de Guzman).

In the instant petition, the petitioners assail the Decision2 dated August 31, 2007 and
Resolution3 dated April 14, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
Page 58 of 675

94838 which reversed and set aside the: (a) Order4 dated December 1, 2005 of the
Regional Trial Court (RTC) of Malolos, Bulacan, Branch 16 granting the petitioners
motion for the issuance of the alias writ of execution of the Decision dated December
27, 2002 in G.R. No. 120004, which ordered HOLCIM to pay the amount equivalent
to the total volume of limestones extracted from the subject property in the sum
of P91,872,576.72; (b) Order5 dated December 20, 2005, which reiterated the
issuance of the alias writ of execution; and (c) Order6 dated June 7, 2006, which
denied the motion for reconsideration of the above-mentioned orders and the
manifestation and motion for ocular inspection filed by HOLCIM. The CAs
Resolution dated April 14, 2008 denied herein petitioners motion for
reconsideration of the CAs Decision dated August 31, 2007.

Antecedent Facts

As a backgrounder and as stated in our Decision dated December 27, 2002 in G.R.
No. 120004, therein respondent Esguerra filed on December 12, 1989 with the RTC,
Malolos, Bulacan, Branch 16 an action to annul the Free Patent in the name of de
Guzman. Esguerra claimed that he was the owner of Lot 3308-B, located at Matiktik,
Norzagaray, Bulacan, covered by Transfer Certificate of Title No. T-1685-P (M) of
the Registry of Deeds of Bulacan, with an approximate area of 47,000 square meters.
Esguerra learned that the said parcel of land was being offered for sale by de Guzman
to Hi-Cement Corporation (now named HOLCIM Philippines, Inc.). The former
possessor of the land, Felisa Maningas, was issued Free Patent No. 575674 which
was subsequently issued in the name of de Guzman over said parcel of land located
at Gidgid, Norzagaray, Bulacan with an area of 20.5631 hectares and described in
Psu-216349, covered by Original Certificate of Title (OCT) No. P-3876. Esguerra
also demanded that the portion of his property, which has been encroached upon and
included in de Guzmans Free Patent, be excluded. He later amended his complaint
to implead Hi-Cement as a co-defendant since the latter was hauling marble from
the subject land. He also prayed that Hi-Cement be ordered to desist from hauling
marble, to account for the marble already hauled and to pay him.7

The RTC dismissed Esguerras complaint but on appeal, the CA reversed in the
Decision dated February 28, 1995 in CA-G.R. CV No. 40140. The dispositive
portion reads as follows:

"WHEREFORE, premises considered, the decision appealed from is REVERSED


and SET ASIDE and another judgment is hereby rendered:
Page 59 of 675

"1. Declaring [de Guzmans] OCT No. P-3876 (Exh. B) null and void insofar
as the disputed area of 38,641 square meters, which is part of Lot 3308-B,
covered by TCT No. 1685-p (Exh. C) in the name of [Esguerra];

"2. Ordering [de Guzman] to cause the segregation, at his expense, of the
disputed area of 38,641 square meters from OCT No. P-3876;

"3. Ordering [de Guzman] to surrender her owners copy of OCT No. P-3876
to the Register of Deeds of Bulacan who is in turn ordered to exclude from
said OCT No. P-3876 the disputed area of 38,641 square meters included in
[Esguerras] TCT No. T-1685;

"4. Ordering [de Guzman] to immediately vacate and surrender to [Esguerra]


possession of the disputed area of 38,641 square meters;

"5. Ordering defendant-appellee Hi-Cement Corporation to immediately


cease and desist from quarrying or extracting marble from the disputed area;

"6. Ordering defendant-appellee Hi-Cement Corporation to make an


accounting of the compensation or royalty it has paid to defendant-appellee
Iluminada de Guzman for marbles quarried from the disputed area of 38,451
square meters from the time of the filing of the amended complaint on March
23, 1990.

"7. Ordering and sentencing defendant-appellee Iluminada de Guzman to pay


and turn over to [Esguerra] all such amounts that she has received from her
co-defendant Hi-Cement Corporation as compensation or royalty for marbles
extracted or quarried from the disputed area of 38,451 square meters
beginning March 23, 1990; and

"8. Ordering defendant-appellee Iluminada de Guzman to pay the costs.

"SO ORDERED."8

In our Decision dated December 27, 2002 in G.R. No. 120004, the Court affirmed
in toto the aforesaid CAs decision. After attaining finality, the case was remanded
to the RTC for execution.9
Page 60 of 675

Thereafter, the heirs of Esguerra, herein petitioners, filed an Omnibus


Motion10 dated September 28, 2004 with the RTC, manifesting that the Courts
decision in G.R. No. 120004 has yet to be executed,11 and thus prayed:

xxxx

1. That Sheriff Perlito Dimagiba be directed to submit his Return on the


execution of the judgment;

2. That defendant Iluminada de Guzman and Hi-Cement (now Union Cement


Corporation Matictic, Sapang Kawayn [sic], Norzagaray, Bulacan) be
diverted [sic] to appear before this Honorable Court x x x;

3. That the plaintiffs be granted other legal and equitable reliefs.12

On December 1, 2004, the RTC issued an Order13, to wit:

Acting on the Omnibus Motion filed by the Heirs of Jorge Esguerra, through
counsel, Atty. Orlando Lambino, and pursuant to Secs. 36 and 37, Rule 39 of [the]
1997 Rules of Civil Procedure, the Court hereby GRANTS the same

AS PRAYED FOR, x x x Sheriff Perlito Dimagiba is hereby directed to submit his


return of a Writ of Execution dated October 28, 2003 within five (5) days from
receipt of this Order.

Accordingly, defendant Iluminada de Guzman of Tanza, Malabon, Metro Manila


and the Hi-Cement (now Union Cement Corporation, Matictic, Sapang Kawayan,
Norzagaray, Bulacan) are hereby ordered to appear before this Court on December
6, 2004 at 8:30 oclock in the morning to be examined on the dispositive portion of
the judgment of the Court of Appeals, affirmed by the Supreme Court.14

However, contrary to the Order dated December 1, 2004, de Guzman and HOLCIM
were not examined. Rather, the petitioners presented Engineer Louie Balicanta who
testified that upon an examination of the topographical maps covering the land of
the deceased Esguerra, the estimated volume of limestone hauled or quarried
therefrom covering the years 1990 to 2003 was 3,535,020.471 cubic meters. On May
16, 2005, the petitioners filed their Formal Offer of Exhibits.15

Later, the petitioners filed a Supplement to the Motion for Execution16 dated August
16, 2005 and a Motion for Alias Writ of Execution17 dated November 9, 2005. They
Page 61 of 675

claimed that the royalties due them amounted to P10.00 per metric ton. Thus, for the
9,187,257.67 metric tons18 of limestone which HOLCIM allegedly acquired, the
petitioners should receive a total royalty of P91,872,576.72.19

On December 1, 2005, the RTC made a finding that the total volume of limestone
which HOLCIM allegedly quarried from the subject land amounted
to P91,872,576.72. It also ordered the issuance of an Alias Writ of Execution for the
royalties which were purportedly due to the petitioners.20 The said order states:

Acting on the motion for alias writ of execution filed by the [petitioners], through
counsel, to be meritorious, the same is hereby granted, it appearing that the decision
subject matter of the writ of execution has not been satisfied by [de Guzman] and
Hi-Cement Corporation, and considering, further, that the Total Volume Extracted
Materials (LIMESTONE) at Lot #3308-B PSD-102661 (Annex A) was properly
proven during the hearing for the examination of judgment debtors showing the
claim of Php91,872,576.72 to be substantiated based on the Monthly Mineral
Commodity Price Monitor for January 2005 (Annex B), together with the O.R. for
Certification fee (Annex C).

AS PRAYED FOR, let an alias writ of execution be issued for the implementation
of the Decision of the Supreme Court in relation to the total volume extracted by Hi-
Cement (now HOLCIM) which is now the successor of defendant Iluminada de
Guzman.21

On December 8, 2005, the petitioners filed an Urgent Motion for


Clarification22 praying that the alias writ of execution be clarified for the purpose of
directing [de Guzman] and/or Hi-Cement Corporation and/or HOLCIM to pay the
petitioners the amount of P91,872,576.72.

As prayed for, the RTC issued an Order23 on December 20, 2005, stating thus:

In view of the Urgent Motion for Clarification filed by the [petitioners], through
counsel, and there being no comment/opposition filed by [de Guzman], let an alias
writ of execution be issued directing [de Guzman] and/or Hi-Cement Corporation
and/or HOLCIM to pay the [petitioners] the amount of Php 91,872,576.72
representing their liability for the minerals extracted from the subject property
pursuant to the Order of the Court, dated December 01, 2005.24
Page 62 of 675

Subsequently, an alias writ of execution and notices of garnishment on several


banks, garnishing all amounts that may have been deposited or owned by HOLCIM,
were issued on December 20, 2005 and December 21, 2005 respectively.25

On January 5, 2006, HOLCIM filed a motion for reconsideration.26 It alleged that it


did not owe any amount of royalty to the petitioners for the extracted limestone from
the subject land. HOLCIM averred that it had actually entered into an
Agreement27 dated March 23, 1993 (Agreement) with the petitioners governing their
respective rights and obligations in relation to the limestone allegedly extracted from
the land in question. HOLCIM further asserted that it had paid advance royalty to
the petitioners from year 1993, in an aggregate sum of P694,184.22, an amount more
than the P218,693.10 which the petitioners were entitled under the Agreement.28

On January 13, 2006, the petitioners filed its Opposition to [the] Motion for
Reconsideration29 dated January 7, 2006, claiming that the Motion for
Reconsideration is barred by the omnibus motion rule because HOLCIM failed to
question the petitioners motion for execution of this Courts decision in G.R. No.
120004. The petitioners also averred that HOLCIM is barred by estoppel to question
the execution of the decision based on the Agreement, because said Agreement is in
contravention with the trial courts previous orders which required HOLCIM to
deposit to the clerk of court the royalties due the deceased Esguerra. The petitioners
also argued that the Agreement is a way to evade the trial courts orders and has been
procured by taking advantage of the petitioners financial distress after Esguerra
died.30

On February 21, 2006, HOLCIM filed a Manifestation and Motion (for Ocular
Inspection).31 It asked the court to conduct an ocular inspection, advancing the
argument that HOLCIM did not extract limestone from any portion of the 47,000-sq
m property which Esguerra owned; and that the pictures, which the petitioners
presented to prove that HOLCIM has been extracting limestone from the subject
land until year 2005, were actually photographs of areas outside the contested land.

On June 7, 2006, the RTC denied HOLCIMs motion for reconsideration and motion
for ocular inspection. It held that the petitioners proved their entitlement to the
royalties totaling to P91,872,576.72. The RTC also blamed HOLCIM for not
presenting its own witnesses and evidence. It further stated that to grant the motions
for reconsideration and ocular inspection is to reopen the case despite the fact that
the trial court has no more power to do so since the execution of this Courts decision
in G.R. No. 120004 is now a matter of right on the petitioners part.32
Page 63 of 675

On June 13, 2006, HOLCIM filed a Petition for Certiorari (with Urgent Applications
for Temporary Restraining Order and/or Writ of Preliminary Injunction)33 with the
CA. On June 30, 2006, the petitioners filed their Comment on [the] "Petition for
Certiorari" and Opposition,34 to which HOLCIM filed a Reply35 on July 25, 2006.
On August 31, 2007, the CA promulgated the now assailed decision finding merit in
HOLCIMs petition.36 The dispositive portion states:

WHEREFORE, the foregoing considered, the instant petition is hereby GRANTED


and the assailed Orders REVERSED and SET ASIDE. No costs.

SO ORDERED.37

The motion for reconsideration thereof was denied in the CAs Resolution38 dated
April 14, 2008.

Issues

Thus, the petitioners filed the present petition for review under Rule 45 of the 1997
Rules of Civil Procedure, raising the following assignment of errors:

A. THE [CA] GRAVELY ERRED IN NOT HOLDING THAT [HOLCIM]


IS ESTOPPED TO QUESTION THE JURISDICTION OF THE TRIAL
COURT TO CONDUCT A HEARING ON THE EXACT PAYMENT
WHICH [HOLCIM] WAS SUPPOSED TO PAY TO THE PETITIONERS;

B. THE [CA] GRAVELY ERRED IN NOT DISMISSING [HOLCIMS]


PETITION FOR CERTIORARI ON [THE] GROUND OF LACK OF
BOARD RESOLUTION AUTHORIZING THE FILING OF THE
PETITION;

C. THE [CA] GRAVELY ERRED IN NOT DISMISSING THE PETITION


FOR [CERTIORARI], IT BEING NOT THE PROPER REMEDY, BUT AN
APPEAL;

D. THE [CA] GRAVELY ERRED IN HOLDING THAT THE TRIAL


COURT GRAVELY ABUSED ITS DISCRETION IN THE EXECUTION
OF THE DECISION BY CALLING FOR EVIDENCE TO PROVE THE
EXACT AMOUNT WHICH [HOLCIM] HAS TO PAY TO THE
PETITIONERS;
Page 64 of 675

E. THE [CA] GRAVELY ERRED IN HOLDING THAT THE ORDERS OF


THE TRIAL COURT OF DECEMBER 1, 2005, DECEMBER 20, 2005,
AND JUNE 7, 2006 MODIFIED THE DECISION OF THE CA G.R. CV NO.
40140 OF FEBRUARY 28, 1995[.]39

Our Ruling

The present petition has substantially complied with the requirements.

HOLCIM alleged that the present petition is fatally defective since all of the most
important pleadings before the RTC and the CA have not been attached to the present
petition. However, a review of the records of the case shows that the petitioners
attached to their petition the following: (a) the CAs Decision in CA-G.R. SP No.
94838 dated August 31, 2007;40 (b) the CAs Resolution in CA-G.R. SP No. 94838
dated April 14, 2008;41 (c) the RTCs Order in Civil Case No. 725-M-89 dated
December 1, 2005;42 (d) the RTCs Order in Civil Case No. 725-M-89 dated
December 20, 2005;43 (e) the RTCs Order in Civil Case No. 725-M-89 dated June
7, 2006;44 (f) HOLCIMs Manifestation and Motion (for Ocular Inspection) in Civil
Case No. 725-M-89 dated February 21, 2006 and its attachments; 45 (g) the
Memorandum of Agreement between Republic Cement Corporation and Spouses
Juan and Maria Bernabe dated December 1, 1991;46 (h) the Price Monitor of the
Department of Environment and Natural Resources (DENR) on the price per metric
ton of non-metallic mines;47 and (i) the Special Power of Attorney executed by
Ligaya and Liesell appointing Lowell as their attorney-in-fact.48

From the foregoing, the Court finds the same substantially compliant with the
requirements of Section 4, Rule 45 of the 1997 Rules of Civil Procedure. All of the
pertinent documents necessary for the Court to appreciate the circumstances
surrounding the case and to resolve the issues at hand were attached. Furthermore,
the parties subsequent comment and reply have sufficiently provided the Court the
needed information regarding the proceedings and acts of the trial court during the
execution of the final and executory decision of this Court in G.R. No. 120004 which
are the matters being questioned. In Shimizu Philippines Contractors, Inc. v.
Magsalin,49the Court proceeded to give due course to the petition when it found the
same and its attachments sufficient for the Court to access and resolve the
controversy.50

On the other hand, the petitioners claim that HOLCIMs petition for certiorari in the
CA failed to comply with the rules on Verification and Certification of Non-Forum
Page 65 of 675

Shopping because the latter did not secure and/or attach a certified true copy of a
board resolution authorizing any of its officers to file said petition.51 Thus, the CA
should have dismissed outright HOLCIMs petition before it.

The general rule is that a corporation can only exercise its powers and transact its
business through its board of directors and through its officers and agents when
authorized by a board resolution or its bylaws. The power of a corporation to sue
and be sued is exercised by the board of directors. The physical acts of the
corporation, like the signing of documents, can be performed only by natural persons
duly authorized for the purpose by corporate bylaws or by a specific act of the board.
Absent the said board resolution, a petition may not be given due course.52

In Bank of the Philippine Islands v. Court of Appeals,53 the Court held that the
application of the rules must be the general rule, and the suspension or even mere
relaxation of its application, is the exception. This Court may go beyond the strict
application of the rules only on exceptional cases when there is truly substantial
compliance with the rule.54

In the case at bar, HOLCIM attached to its Petition for Certiorari before the CA a
Secretarys Certificate authorizing Mr. Paul M. OCallaghan (OCallaghan), its
Chief Operating Officer, to nominate, designate and appoint the corporations
authorized representative in court hearings and conferences and the signing of court
pleadings.55 It also attached the Special Power of Attorney dated June 9, 2006,
signed by OCallaghan, appointing Sycip Salazar Hernandez & Gatmaitan and/or
any of its lawyers to represent HOLCIM;56 and consequently, the Verification and
Certification of Non Forum Shopping signed by the authorized representative. 57 To
be sure, HOLCIM, in its Reply filed in the CA, attached another Secretarys
Certificate, designating and confirming OCallaghans power to authorize Sycip
Salazar Hernandez & Gatmaitan and/or any of its lawyers to file for and on behalf
of HOLCIM, the pertinent civil and/or criminal actions in Civil Case No. 725-M-89
pending before the RTC, including any petition to be filed with the CA and/or the
Supreme Court in connection with the Orders dated December 1, 2005, December
20, 2005 and June 7, 2006.58

The foregoing convinces the Court that the CA did not err in admitting HOLCIMs
petition before it. HOLCIM attached all the necessary documents for the filing of a
petition for certiorari before the CA. Indeed, there was no complete failure to attach
a Certificate of Non-Forum Shopping. In fact, there was such a certificate. While the
board resolution may not have been attached, HOLCIM complied just the same
Page 66 of 675

when it attached the Secretarys Certificate dated July 17, 2006, thus proving that
OCallaghan had the authority from the board of directors to appoint the counsel to
represent them in Civil Case No. 725-M-89. The Court recognizes the compliance
made by HOLCIM in good faith since after the petitioners pointed out the said
defect, HOLCIM submitted the Secretarys Certificate dated July 17, 2006,
confirming the earlier Secretarys Certificate dated June 9, 2006. For the Court, the
ruling in General Milling Corporation v. NLRC59 is applicable where the Court
rendered a decision in favor of the petitioner despite its failure to attach the
Certification of Non- Forum Shopping. The Court held that there was substantial
compliance when it eventually submitted the required documents. Substantial justice
dictates that technical and procedural rules must give way because a deviation from
the rigid enforcement of the rules will better serve the ends of justice. The Court
ratiocinated:

The rules of procedure are intended to promote, rather than frustrate, the ends of
justice, and while the swift unclogging of court dockets is a laudable objective, it,
nevertheless, must not be met at the expense of substantial justice. Technical and
procedural rules are intended to help secure, not suppress, the cause of justice and a
deviation from the rigid enforcement of the rules may be allowed to attain that prime
objective for, after all, the dispensation of justice is the core reason for the existence
of courts.60 (Citation omitted)

HOLCIMs filing in the CA of a petition for certiorari under Rule 65 of the 1997
Rules of Civil Procedure is proper.

The petitioners also argue that the CA gravely erred when it did not dismiss
HOLCIMs petition for certiorari on the ground of improper remedy. The petitioners
contend that HOLCIM should have filed an appeal because when the RTC allowed
the petitioners to adduce evidence to determine the exact amount to be paid by
HOLCIM during the execution stage, it was implementing the dispositive portion of
the decision of the CA in CA-G.R. CV No. 40140 as affirmed by the Court. As ruled
by the trial court, a case in which an execution has been issued is regarded as still
pending so that all proceedings on the execution are proceedings in the suit.
Accordingly, the court that rendered the judgment maintains a general supervisory
control over its process of execution, and this power carries with it the right to
determine questions of fact and law, which may be involved in the execution.61 Thus,
for the petitioners, the RTC neither acted in excess of its jurisdiction nor with grave
abuse of discretion, which would call for HOLCIM to file a petition for certiorari.62
Page 67 of 675

The Court disagrees with the petitioners mental acrobatics. Their arguments are
contrary to Section 1(f), Rule 41 of the Rules of Court, which provides:

Sec. 1. Subject of appeal.An appeal may be taken from a judgment or final order
that completely disposes of the case, or of a particular matter therein when declared
by these Rules to be appealable.

No appeal may be taken from:

xxxx

(f) an order of execution;

xxxx

In all the above instances where the judgment or final order is not appealable, the
aggrieved party may file an appropriate special civil action under Rule 65.

The foregoing provision is explicit that no appeal may be taken from an order of
execution and a party who challenges such order may file a special civil action for
certiorari under Rule 65 of the Rules of Court.63 An order of execution, when issued
with grave abuse of discretion amounting to lack or excess of jurisdiction, may be
the subject of a petition for certiorari under Rule 65.64 Thus, HOLCIM did not err in
filing a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure.

HOLCIM is not estopped to question the jurisdiction of the trial court to conduct a
hearing and to accept evidence on the exact amount of royalty HOLCIM should pay
the petitioners.

The petitioners argue that HOLCIM is estopped from questioning the jurisdiction of
the RTC in conducting a hearing on the exact amount of royalty that HOLCIM must
pay the petitioners. They allege that: (a) HOLCIM expressed willingness to pay the
royalty to whoever would be adjudged the rightful owner of the subject land; (b)
HOLCIM and de Guzman did not appear in the hearing nor oppose the Omnibus
Motion dated September 28, 2004; (c) HOLCIM did not file any opposition or
comment on the petitioners Formal Offer of Evidence, Supplement to the Motion
for Execution and Motion for Alias Writ of Execution; and (d) HOLCIM is now the
new owner of de Guzmans property. As such, it has acquired the rights, interests
and liabilities of de Guzman. The petitioners insist that HOLCIM must not only
Page 68 of 675

account for the royalty it paid de Guzman, but it must also turn over said payments
to the petitioners.65

HOLCIM counter-argues that when it expressed willingness to pay the royalties to


whoever would be declared the rightful owner of the subject land, it simply
manifested its good faith in fulfilling its obligations. It adds that the petitioners and
HOLCIM entered into an Agreement regarding the amount of royalty it should pay
to the landowner; and subsequently, the petitioners voluntarily accepted and retained
the amount of P694,184.22 paid by HOLCIM. In fact, HOLCIM stresses that the
said amount was more than what was stipulated in the Agreement. HOLCIM also
asserts that jurisdiction is conferred by law, and not by laches, estoppel or by
agreement among the parties and such lack of jurisdiction may be raised at any stage
of the proceedings.66 Furthermore, HOLCIM avers that it is even the DENR panel
of arbitrators which has jurisdiction over the case pursuant to Section 77 of the
Philippine Mining Act of 1995.67 Lastly, HOLCIM claims that it eventually acquired
de Guzmans property, maintaining that the said property did not overlap with
Esguerras property. Thus, HOLCIMs ownership and quarrying operations on lands
outside the disputed area would have no bearing whatsoever on the petitioners claim
for royalties on extractions done within the disputed area. HOLCIM also asseverates
that the obligation to turn over any royalty paid to de Guzman is not a real obligation
which attaches to the disputed area or to the land itself or which follows the property
to whoever might subsequently become its owner; rather, HOLCIM argues that the
obligation is purely a personal obligation of de Guzman and thus, not transferable to
HOLCIM.

What is clear is that the present case emanates from the petitioners desire to
implement the CA decision in CA-G.R. CV No. 40140 which was affirmed by the
Court in the Decision of December 27, 2002 in G.R. No. 120004. At the execution
stage, the only thing left for the trial court to do is to implement the final and
executory judgment; and the dispositive portion of the decision controls the
execution of judgment. The final judgment of this Court cannot be altered or
modified, except for clerical errors, misprisions or omissions.68

In the instant case, the CAs decision which this Court affirmed in G.R. No. 120004
rendered, among others, the following judgment:

(a) Insofar as then defendant-appellee de Guzman is concerned, the CA


declared OCT No. P-3876 in her possession null and void in relation to the
Page 69 of 675

disputed area of 38,641 sq m; the same CAs decision subsequently ordered


de Guzman

[i] to segregate at her expense the disputed area of 38,641 sq m from


OCT No. P-3876;

[ii] to surrender her owners copy of OCT No. P-3876 to the Register
of Deeds of Bulacan;

[iii] to immediately vacate and surrender to then plaintiff-appellant


Esguerra possession of the disputed area;

[iv] to pay and turn over to plaintiff-appellant Esguerra all the amount
she received from her co-defendant Hi-Cement Corporation (now
HOLCIM) as compensation or royalty for marbles extracted or quarried
from the disputed area of 38,451 sq m beginning March 23, 1990; and

[v] to pay the costs.

(b) Insofar as HOLCIM is concerned, the CAs decision ordered HOLCIM

[i] to immediately cease and desist from quarrying or extracting marble


from the disputed area; and

[ii] to make an accounting of the royalty it paid to de Guzman.

Indeed, the final judgment does not direct HOLCIM nor its predecessor Hi-Cement
to pay a certain amount to Esguerra and his heirs. What was required from HOLCIM
to do was merely to account for the payments it made to de Guzman. Apparently,
this was not enforced. It may be deduced from the records that when the petitioners
filed the Omnibus Motion dated September 28, 2004, they asked for the examination
of de Guzman and Hi-Cement (HOLCIM) under Sections 36 and 37 of Rule 39 of
the Rules of Court. This motion was subsequently granted by the trial court.

Sections 3669 and 3770 of Rule 39 of the Rules of Court are resorted to only when the
judgment remains unsatisfied, and there is a need for the judgment obligor to appear
and be examined concerning his property and income for their application to the
unsatisfied amount in the judgment. In the instant case, the decision in CA-G.R. CV
No. 40140 as affirmed by the Court calls on HOLCIM to simply make an accounting
of the royalty paid to de Guzman. Unfortunately, the trial court, instead of facilitating
Page 70 of 675

the accounting of payments made by HOLCIM to de Guzman, proceeded to adduce


evidence on the amount of limestone extracted from the disputed area and imposed
the monetary liability on HOLCIM.

It is rather unfortunate that HOLCIM did not register a whimper upon petitioners
presentation of evidence.1wphi1 Notwithstanding, it cannot be denied that the trial
court committed grave abuse of discretion in issuing the questioned orders without
giving HOLCIM the chance to be heard. Indeed, when the decision has been
rendered unenforceable on account of the undetermined amount to be awarded, it
was incumbent upon the trial court to receive evidence from both parties to
determine the exact amount due to the petitioners.71 Since HOLCIM was not given
an opportunity to rebut the petitioners evidence, considering that the formers
Manifestation and Motion for Ocular Inspection was denied, justice will be better
served if the trial court determines first the existence of documents relative to
HOLCIMs payments made to de Guzman, and if the same is not done, to receive
further evidence, this time, from both parties. It must be emphasized, however, that
the evidence to be adduced here is in relation to the amount of royalty paid to de
Guzman by HOLCIM for marbles extracted from the disputed area of 38,451 sq m
beginning March 23, 1990 up to the time HOLCIM ceased to operate in the subject
area. In the event that the petitioners claim is beyond the subject area and period,
and HOLCIM denies such indebtedness, the governing rule should be Section 43,
Rule 39 of the Rules of Court, to wit:

SEC. 43. Proceedings when indebtedness denied or another person claims the
property. If it appears that a person or corporation, alleged to have property of the
judgment obligor or to be indebted to him, claims an interest in the property adverse
to him or denies the debt, the court may authorize, by an order made to that effect,
the judgment obligee to institute an action against such person or corporation for the
recovery of such interest or debt, forbid a transfer or other disposition of such interest
or debt within one hundred twenty (120) days from notice of the order, and may
punish disobedience of such order as for contempt. Such order may be modified or
vacated at any time by the court which issued it, or by the court in which the action
is brought, upon such terms as may be just. (Emphasis ours)

Pursuant to this Rule, in the examination of a person, corporation, or other juridical


entity who has the property of such judgment obligor or is indebted to him (Rule 39,
Section 37), and such person, corporation, or juridical entity denies an indebtedness,
the court may only authorize the judgment obligee to institute an action against such
person or corporation for the recovery of such interest or debt. Nothing in the Rules
Page 71 of 675

gives the court the authority to order such person or corporation to pay the judgment
obligee and the court exceeds its jurisdiction if it orders the person who denies the
indebtedness to pay the same. In Atilano II v. Asaali,72 the Court held that an
"[e]xecution of a judgment can only be issued against one who is a party to the
action, and not against one who, not being a party thereto, did not have his day in
court. Due process dictates that a court decision can only bind a party to the litigation
and not against innocent third parties."73

Finally, the Court does not agree with petitioners argument that the person of de
Guzman is "now merged in the person of HOLCIM or that HOLCIM has assumed
her personal liability or the judgment rendered against her."74Nothing in the records
shows that HOLCIM admitted of assuming all the liabilities of de Guzman prior to
the sale of the subject property. HOLCIM, however, expresses its willingness to pay
royalty only to the rightful owner of the disputed area. Thus, in the event that the
amount paid by HOLCIM to de Guzman has been proven, de Guzman is ordered to
turn over the payment to the petitioners.75 If the petitioners insist that HOLCIM
owed them more than what it paid to de Guzman, the petitioners cannot invoke the
CAs decision which was affirmed by the Court in G.R. No. 120004 to ask for
additional royalty. As earlier discussed, this must be addressed in a separate action
for the purpose. All told, the Court finds no reversible error with the decision of the
CA in nullifying the orders of the RTC for having been issued in excess of its
jurisdiction.

WHEREFORE, the Decision dated August 31, 2007 and the Resolution dated April
14, 2008 of the Court of Appeals in CA-G.R. SP No. 94838 are hereby AFFIRMED.

SO ORDERED.
Page 72 of 675

SPOUSES VICENTE AFULUGENCIA and LETICIA


AFULUGENCIA, Petitioners,
vs.
METROPOLITAN BANK & TRUST CO. and EMMANUEL L. ORTEGA,
Clerk of Court, Regional Trial Court and Ex-Officio Sheriff, Province of
Bulacan, Respondents.

DECISION

DEL CASTILLO, J.:

Section 6,1 Rule 25 of the Rules of Court (Rules) provides that "a party not served
with written interrogatories may not be compelled by the adverse party to give
testimony in open court, or to give a deposition pending appeal." The provision seeks
to prevent fishing expeditions and needless delays. Its goal is to maintain order and
facilitate the conduct of trial.

Assailed in this Petition for Review on Certiorari2 are the April 15, 2008
Decision3 of the Court of Appeals (CA) in CA-G.R. SP No. 99535 which dismissed
petitioners' Petition for Certiorari for lack of merit and its October 2, 2008
Resolution4 denying petitioners' Motion for Reconsideration.5

Factual Antecedents

Petitioners, spouses Vicente and Leticia Afulugencia, filed a Complaint 6 for


nullification of mortgage, foreclosure, auction sale, certificate of sale and other
documents, with damages, against respondents Metropolitan Bank & Trust Co.
(Metrobank) and Emmanuel L. Ortega (Ortega) before the Regional Trial Court
(RTC) of Malolos City, where it was docketed as Civil Case No. 336-M-2004 and
assigned to Branch 7.

Metrobank is a domestic banking corporation existing under Philippine laws, while


Ortega is the Clerk of Court and Ex-Officio Sheriff of the Malolos RTC.

After the filing of the parties pleadings and with the conclusion of pre-trial,
petitioners filed a Motion for Issuance of Subpoena Duces Tecum Ad
Testificandum7 to require Metrobanks officers8 to appear and testify as the
petitioners initial witnesses during the August 31, 2006 hearing for the presentation
of their evidence-in-chief, and to bring the documents relative to their loan with
Metrobank, as well as those covering the extrajudicial foreclosure and sale of
Page 73 of 675

petitioners 200-square meter land in Meycauayan, Bulacan covered by Transfer


Certificate of Title No. 20411 (M). The Motion contained a notice of hearing written
as follows:

NOTICE

The Branch Clerk of Court


Regional Trial Court
Branch 7, Malolos, Bulacan

Greetings:

Please submit the foregoing motion for the consideration and approval of the Hon.
Court immediately upon receipt hereof.

(signed)
Vicente C. Angeles9

Metrobank filed an Opposition10 arguing that for lack of a proper notice of hearing,
the Motion must be denied; that being a litigated motion, the failure of petitioners to
set a date and time for the hearing renders the Motion ineffective and pro forma; that
pursuant to Sections 1 and 611 of Rule 25 of the Rules, Metrobanks officers who
are considered adverse parties may not be compelled to appear and testify in court
for the petitioners since they were not initially served with written interrogatories;
that petitioners have not shown the materiality and relevance of the documents
sought to be produced in court; and that petitioners were merely fishing for evidence.

Petitioners submitted a Reply12 to Metrobanks Opposition, stating that the lack of a


proper notice of hearing was cured by the filing of Metrobanks Opposition; that
applying the principle of liberality, the defect may be ignored; that leave of court is
not necessary for the taking of Metrobanks officers depositions; that for their case,
the issuance of a subpoena is not unreasonable and oppressive, but instead favorable
to Metrobank, since it will present the testimony of these officers just the same
during the presentation of its own evidence; that the documents sought to be
produced are relevant and will prove whether petitioners have paid their obligations
to Metrobank in full, and will settle the issue relative to the validity or invalidity of
the foreclosure proceedings; and that the Rules do not prohibit a party from
presenting the adverse party as its own witness.

Ruling of the Regional Trial Court


Page 74 of 675

On October 19, 2006, the trial court issued an Order13 denying petitioners Motion
for Issuance of Subpoena Duces Tecum Ad Testificandum, thus:

The motion lacks merit.

As pointed out by the defendant bank in its opposition, the motion under
consideration is a mere scrap of paper by reason of its failure to comply with the
requirements for a valid notice of hearing as specified in Sections 4 and 5 of Rule
15 of the Revised Rules of Court. Moreover, the defendant bank and its officers are
adverse parties who cannot be summoned to testify unless written interrogatories are
first served upon them, as provided in Sections 1 and 6, Rule 25 of the Revised Rules
of Court.

In view of the foregoing, and for lack of merit, the motion under consideration is
hereby DENIED.

SO ORDERED.14

Petitioners filed a Motion for Reconsideration15 pleading for leniency in the


application of the Rules and claiming that the defective notice was cured by the filing
of Metrobanks Opposition, which they claim is tantamount to notice. They further
argued that Metrobanks officers who are the subject of the subpoena are not
party-defendants, and thus do not comprise the adverse party; they are individuals
separate and distinct from Metrobank, the defendant corporation being sued in the
case.

In an Opposition16 to the Motion for Reconsideration, Metrobank insisted on the


procedural defect of improper notice of hearing, arguing that the rule relative to
motions and the requirement of a valid notice of hearing are mandatory and must be
strictly observed. It added that the same rigid treatment must be accorded to Rule
25, in that none of its officers may be summoned to testify for petitioners unless
written interrogatories are first served upon them. Finally, it said that since a
corporation may act only through its officers and employees, they are to be
considered as adverse parties in a case against the corporation itself.

In another Order17 dated April 17, 2007, the trial court denied petitioners Motion
for Reconsideration. The trial court held, thus:

Even if the motion is given consideration by relaxing Sections 4 and 5, Rule 15 of


the Rules of Court, no such laxity could be accorded to Sections 1 and 6 of Rule 25
Page 75 of 675

of the Revised Rules of Court which require prior service of written interrogatories
to adverse parties before any material and relevant facts may be elicited from them
more so if the party is a private corporation who could be represented by its officers
as in this case. In other words, as the persons sought to be subpoenaed by the
plaintiffs-movants are officers of the defendant bank, they are in effect the very
persons who represent the interest of the latter and necessarily fall within the
coverage of Sections 1 and 6, Rule 25 of the Revised Rules of Court.

In view of the foregoing, the motion for reconsideration is hereby denied.

SO ORDERED.18

Ruling of the Court of Appeals

Petitioners filed a Petition for Certiorari19 with the CA asserting this time that their
Motion for Issuance of Subpoena Duces Tecum Ad Testificandum is not a litigated
motion; it does not seek relief, but aims for the issuance of a mere process. For these
reasons, the Motion need not be heard. They likewise insisted on liberality, and the
disposition of the case on its merits and not on mere technicalities.20 They added that
Rule 2121 of the Rules requires prior notice and hearing only with respect to the
taking of depositions; since their Motion sought to require Metrobanks officers to
appear and testify in court and not to obtain their depositions, the requirement of
notice and hearing may be dispensed with. Finally, petitioners claimed that the Rules
particularly Section 10,22Rule 132 do not prohibit a party from presenting the
adverse party as its own witness.

On April 15, 2008, the CA issued the questioned Decision, which contained the
following decretal portion:

WHEREFORE, the petition is DISMISSED for lack of merit. The assailed orders
dated October 19, 2006 and April 17, 2007 in Civil Case No. 336-M-2004 issued by
the RTC, Branch 7, Malolos City, Bulacan, are AFFIRMED. Costs against
petitioners.

SO ORDERED.23

The CA held that the trial court did not commit grave abuse of discretion in issuing
the assailed Orders; petitioners Motion is a litigated motion, especially as it seeks
to require the adverse party, Metrobanks officers, to appear and testify in court as
petitioners witnesses. It held that a proper notice of hearing, addressed to the parties
Page 76 of 675

and specifying the date and time of the hearing, was required, consistent with
Sections 4 and 5,24 Rule 15 of the Rules.

The CA held further that the trial court did not err in denying petitioners Motion to
secure a subpoena duces tecum/ad testificandum, ratiocinating that Rule 25 is quite
clear in providing that the consequence of a partys failure to serve written
interrogatories upon the opposing party is that the latter may not be compelled by
the former to testify in court or to render a deposition pending appeal. By failing to
serve written interrogatories upon Metrobank, petitioners foreclosed their right to
present the banks officers as their witnesses.

The CA declared that the justification for the rule laid down in Section 6 is that by
failing to seize the opportunity to inquire upon the facts through means available
under the Rules, petitioners should not be allowed to later on burden Metrobank with
court hearings or other processes. Thus, it held:

x x x Where a party unjustifiedly refuses to elicit facts material and relevant to his
case by addressing written interrogatories to the adverse party to elicit those facts,
the latter may not thereafter be compelled to testify thereon in court or give a
deposition pending appeal. The justification for this is that the party in need of said
facts having foregone the opportunity to inquire into the same from the other party
through means available to him, he should not thereafter be permitted to unduly
burden the latter with courtroom appearances or other cumbersome processes. The
sanction adopted by the Rules is not one of compulsion in the sense that the party is
being directly compelled to avail of the discovery mechanics, but one of negation by
depriving him of evidentiary sources which would otherwise have been accessible
to him.25

Petitioners filed their Motion for Reconsideration,26 which the CA denied in its
assailed October 2, 2008 Resolution. Hence, the present Petition.

Issues

Petitioners now raise the following issues for resolution:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERRORS IN


REQUIRING NOTICE AND HEARING (SECS. 4 AND 5, RULE 15, RULES OF
COURT) FOR A MERE MOTION FOR SUBPOENA OF RESPONDENT
Page 77 of 675

BANKS OFFICERS WHEN SUCH REQUIREMENTS APPLY ONLY TO


DEPOSITION UNDER SEC. 6, RULE 25, RULES OF COURT.

II

THE COURT OF APPEALS COMMITTED (REVERSIBLE) ERROR IN


HOLDING THAT THE PETITIONERS MUST FIRST SERVE WRITTEN
INTERROGATORIES TO RESPONDENT BANKS OFFICERS BEFORE THEY
CAN BE SUBPOENAED.27

Petitioners Arguments

Praying that the assailed CA dispositions be set aside and that the Court allow the
issuance of the subpoena duces tecum/ad testificandum, petitioners assert that the
questioned Motion is not a litigated motion, since it seeks not a relief, but the
issuance of process. They insist that a motion which is subject to notice and hearing
under Sections 4 and 5 of Rule 15 is an application for relief other than a pleading;
since no relief is sought but just the process of subpoena, the hearing and notice
requirements may be done away with. They cite the case of Adorio v. Hon.
Bersamin,28 which held that

Requests by a party for the issuance of subpoenas do not require notice to other
parties to the action.1wphi1 No violation of due process results by such lack of
notice since the other parties would have ample opportunity to examine the witnesses
and documents subpoenaed once they are presented in court.29

Petitioners add that the Rules should have been liberally construed in their favor,
and that Metrobanks filing of its Opposition be considered to have cured whatever
defect the Motion suffered from.

Petitioners likewise persist in the view that Metrobanks officers the subject of the
Motion do not comprise the adverse party covered by the rule; they insist that these
bank officers are mere employees of the bank who may be called to testify for them.

Respondents Arguments

Metrobank essentially argues in its Comment30 that the subject Motion for the
issuance of a subpoena duces tecum/ad testificandum is a litigated motion, especially
as it is directed toward its officers, whose testimony and documentary evidence
would affect it as the adverse party in the civil case. Thus, the lack of a proper notice
Page 78 of 675

of hearing renders it useless and a mere scrap of paper. It adds that being its officers,
the persons sought to be called to the stand are themselves adverse parties who may
not be compelled to testify in the absence of prior written interrogatories; they are
not ordinary witnesses whose presence in court may be required by petitioners at any
time and for any reason.

Finally, Metrobank insists on the correctness of the CA Decision, adding that since
petitioners failed up to this time to pay the witnesses fees and kilometrage as
required by the Rules,31 the issuance of a subpoena should be denied.

Our Ruling

The Court denies the Petition.

On the procedural issue, it is quite clear that Metrobank was notified of the Motion
for Issuance of Subpoena Duces Tecum Ad Testificandum; in fact, it filed a timely
Opposition thereto. The technical defect of lack of notice of hearing was thus cured
by the filing of the Opposition.32

Nonetheless, contrary to petitioners submission, the case of Adorio cannot apply


squarely to this case. In Adorio, the request for subpoena duces tecum was sought
against bank officials who were not parties to the criminal case for violation of Batas
Pambansa Blg. 22. The situation is different here, as officers of the adverse party
Metrobank are being compelled to testify as the calling partys main witnesses;
likewise, they are tasked to bring with them documents which shall comprise the
petitioners principal evidence. This is not without significant consequences that
affect the interests of the adverse party, as will be shown below.

As a rule, in civil cases, the procedure of calling the adverse party to the witness
stand is not allowed, unless written interrogatories are first served upon the latter.
This is embodied in Section 6, Rule 25 of the Rules, which provides

Sec. 6. Effect of failure to serve written interrogatories.

Unless thereafter allowed by the court for good cause shown and to prevent a failure
of justice, a party not served with written interrogatories may not be compelled by
the adverse party to give testimony in open court, or to give a deposition pending
appeal.
Page 79 of 675

One of the purposes of the above rule is to prevent fishing expeditions and needless
delays; it is there to maintain order and facilitate the conduct of trial. It will be
presumed that a party who does not serve written interrogatories on the adverse party
beforehand will most likely be unable to elicit facts useful to its case if it later opts
to call the adverse party to the witness stand as its witness. Instead, the process could
be treated as a fishing expedition or an attempt at delaying the proceedings; it
produces no significant result that a prior written interrogatories might bring.

Besides, since the calling party is deemed bound by the adverse partys
testimony,33 compelling the adverse party to take the witness stand may result in the
calling party damaging its own case. Otherwise stated, if a party cannot elicit facts
or information useful to its case through the facility of written interrogatories or
other mode of discovery, then the calling of the adverse party to the witness stand
could only serve to weaken its own case as a result of the calling partys being bound
by the adverse partys testimony, which may only be worthless and instead
detrimental to the calling partys cause.

Another reason for the rule is that by requiring prior written interrogatories, the court
may limit the inquiry to what is relevant, and thus prevent the calling party from
straying or harassing the adverse party when it takes the latter to the stand.

Thus, the rule not only protects the adverse party from unwarranted surprises or
harassment; it likewise prevents the calling party from conducting a fishing
expedition or bungling its own case. Using its own judgment and discretion, the
court can hold its own in resolving a dispute, and need not bear witness to the parties
perpetrating unfair court practices such as fishing for evidence, badgering, or
altogether ruining their own cases. Ultimately, such unnecessary processes can only
constitute a waste of the courts precious time, if not pointless entertainment.

In the present case, petitioners seek to call Metrobanks officers to the witness stand
as their initial and main witnesses, and to present documents in Metrobanks
possession as part of their principal documentary evidence. This is improper.
Petitioners may not be allowed, at the incipient phase of the presentation of their
evidence-in-chief at that, to present Metrobanks officers who are considered
adverse parties as well, based on the principle that corporations act only through
their officers and duly authorized agents34 as their main witnesses; nor may they
be allowed to gain access to Metrobanks documentary evidence for the purpose of
making it their own. This is tantamount to building their whole case from the
evidence of their opponent. The burden of proof and evidence falls on petitioners,
Page 80 of 675

not on Metrobank; if petitioners cannot prove their claim using their own evidence,
then the adverse party Metrobank may not be pressured to hang itself from its own
defense.

It is true that under the Rules, a party may, for good cause shown and to prevent a
failure of justice, be compelled to give testimony in court by the adverse party who
has not served written interrogatories. But what petitioners seek goes against the
very principles of justice and fair play; they would want that Metrobank provide the
very evidence with which to prosecute and build their case from the start. This they
may not be allowed to do.

Finally, the Court may not turn a blind eye to the possible consequences of such a
move by petitioners. As one of their causes of action in their Complaint, petitioners
claim that they were not furnished with specific documents relative to their loan
agreement with Metrobank at the time they obtained the loan and while it was
outstanding. If Metrobank were to willingly provide petitioners with these
documents even before petitioners can present evidence to show that indeed they
were never furnished the same, any inferences generated from this would certainly
not be useful for Metrobank. One may be that by providing petitioners with these
documents, Metrobank would be admitting that indeed, it did not furnish petitioners
with these documents prior to the signing of the loan agreement, and while the loan
was outstanding, in violation of the law.

With the view taken of the case, the Court finds it unnecessary to further address the
other issues raised by the parties, which are irrelevant and would not materially alter
the conclusions arrived at.

WHEREFORE, the Petition is DENIED. The assailed April 15, 2008 Decision and
October 2, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 99535 are
AFFIRMED.

SO ORDERED.
Page 81 of 675

G.R. No.176897 December 11, 2013

ADVANCE PAPER CORPORATION and GEORGE HAW, in his capacity as


President of Advance Paper Corporation, Petitioners,
vs.
ARMA TRADERS CORPORATION, MANUEL TING, CHENG GUI and
BENJAMIN NG, Respondents.

x-------------------------------------------------x

ANTONIO TAN and UY SENG KEE WILLY, Respondents.

DECISION

BRION, J.:

Before us is a Petition for Review1 seeking to set aside the Decision of the Court of
Appeals (CA) in CA-G.R. CV No. 71499 dated March 31, 2006 and the Resolution
dated March 7, 2007.2 The Decision reversed and set aside the ruling of the Regional
Trial Court (RTC) of Manila, Branch 18 in Civil Case No. 94-72526 which ordered
Arma Traders Corporation (Arma Traders) to pay Advance Paper
Corporation (Advance Paper) the sum of P15,321,798.25 with interest,
and P1,500,000.00 for attorneys fees, plus the cost of the suit.3

Factual Antecedents

Petitioner Advance Paper is a domestic corporation engaged in the business of


producing, printing, manufacturing, distributing and selling of various paper
products.4 Petitioner George Haw (Haw) is the President while his wife, Connie
Haw, is the General Manager.5

Respondent Arma Traders is also a domestic corporation engaged in the wholesale


and distribution of school and office supplies, and novelty products. 6 Respondent
Page 82 of 675

Antonio Tan (Tan) was formerly the President while respondent Uy Seng Kee Willy
(Uy) is the Treasurer of Arma Traders.7 They represented Arma Traders when
dealing with its supplier, Advance Paper, for about 14 years.8

On the other hand, respondents Manuel Ting, Cheng Gui and Benjamin Ng worked
for Arma Traders as Vice-President, General Manager and Corporate Secretary,
respectively.9

On various dates from September to December 1994, Arma Traders purchased on


credit notebooks and other paper products amounting to P7,533,001.49 from
Advance Paper. 10

Upon the representation of Tan and Uy, Arma Traders also obtained three loans from
Advance Paper in November 1994 in the amounts of P3,380,171.82, P1,000,000.00,
and P3,408,623.94 or a total of P7,788,796.76.11 Arma Traders needed the loan to
settle its obligations to other suppliers because its own collectibles did not arrive on
time.12 Because of its good business relations with Arma Traders, Advance Paper
extended the loans.13

As payment for the purchases on credit and the loan transactions, Arma Traders
issued 82 postdated checks14payable to cash or to Advance Paper. Tan and Uy were
Arma Traders authorized bank signatories who signed and issued these checks
which had the aggregate amount of P15,130,636.87.15

Advance Paper presented the checks to the drawee bank but these were dishonored
either for "insufficiency of funds" or "account closed." Despite repeated demands,
however, Arma Traders failed to settle its account with Advance Paper.16

On December 29, 1994, the petitioners filed a complaint 17 for collection of sum of
money with application for preliminary attachment against Arma Traders, Tan, Uy,
Ting, Gui, and Ng.

Claims of the petitioners

The petitioners claimed that the respondents fraudulently issued the postdated
checks as payment for the purchases and loan transactions knowing that they did not
have sufficient funds with the drawee banks.18

To prove the purchases on credit, the petitioners presented the summary of the
transactions and their corresponding sales invoices as their documentary evidence.19
Page 83 of 675

During the trial, Haw also testified that within one or two weeks upon delivery of
the paper products, Arma Traders paid the purchases in the form of postdated checks.
Thus, he personally collected these checks on Saturdays and upon receiving the
checks, he surrendered to Arma Traders the original of the sales invoices while he
retained the duplicate of the invoices.20

To prove the loan transactions, the petitioners presented the copies of the
checks21 which Advance Paper issued in favor of Arma Traders. The petitioners also
filed a manifestation22 dated June 14, 1995, submitting a bank statement from
Metrobank EDSA Kalookan Branch. This was to show that Advance Papers credit
line with Metrobank has been transferred to the account of Arma Traders as payee
from October 1994 to December 1994.

Moreover, Haw testified to prove the loan transactions. When asked why he
considered extending the loans without any collateral and loan agreement or
promissory note, and only on the basis of the issuance of the postdated checks, he
answered that it was because he trusted Arma Traders since it had been their
customer for a long time and that none of the previous checks ever bounced.23

Claims of the respondents

The respondents argued that the purchases on credit were spurious, simulated and
fraudulent since there was no delivery of the P7,000,000.00 worth of notebooks and
other paper products.24

During the trial, Ng testified that Arma Traders did not purchase notebooks and other
paper products from September to December 1994. He claimed that during this
period, Arma Traders concentrated on Christmas items, not school and office
supplies. He also narrated that upon learning about the complaint filed by the
petitioners, he immediately looked for Arma Traders records and found no receipts
involving the purchases of notebooks and other paper products from Advance
Paper.25

As to the loan transactions, the respondents countered that these were the personal
obligations of Tan and Uy to Advance Paper. These loans were never intended to
benefit the respondents.

The respondents also claimed that the loan transactions were ultra vires because the
board of directors of Arma Traders did not issue a board resolution authorizing Tan
Page 84 of 675

and Uy to obtain the loans from Advance Paper. They claimed that the borrowing of
money must be done only with the prior approval of the board of directors because
without the approval, the corporate officers are acting in excess of their authority
or ultra vires. When the acts of the corporate officers are ultra vires, the corporation
is not liable for whatever acts that these officers committed in excess of their
authority. Further, the respondents claimed that Advance Paper failed to verify Tan
and Uys authority to transact business with them. Hence, Advance Paper should
suffer the consequences.26

The respondents accused Tan and Uy for conspiring with the petitioners to defraud
Arma Traders through a series of transactions known as rediscounting of postdated
checks. In rediscounting, the respondents explained that Tan and Uy would issue
Arma Traders postdated checks to the petitioners in exchange for cash, discounted
by as much as 7% to 10% depending on how long were the terms of repayment. The
rediscounted percentage represented the interest or profit earned by the petitioners
in these transactions.27

Tan did not file his Answer and was eventually declared in default.

On the other hand, Uy filed his Answer28 dated January 20, 1995 but was
subsequently declared in default upon his failure to appear during the pre-trial. In
his Answer, he admitted that Arma Traders together with its corporate officers have
been transacting business with Advance Paper.29 He claimed that he and Tan have
been authorized by the board of directors for the past 13 years to issue checks in
behalf of Arma Traders to pay its obligations with Advance Paper.30 Furthermore,
he admitted that Arma Traders checks were issued to pay its contractual
obligations with Advance Paper.31 However, according to him, Advance Paper
was informed beforehand that Arma Traders checks were funded out of
the P20,000,000.00 worth of collectibles coming from the provinces. Unfortunately,
the expected collectibles did not materialize for unknown reasons.32

Ng filed his Answer33 and claimed that the management of Arma Traders was left
entirely to Tan and Uy. Thus, he never participated in the companys daily
transactions.34

Atty. Ernest S. Ang, Jr. (Atty. Ang), Arma Traders Vice-President for Legal Affairs
and Credit and Collection, testified that he investigated the transactions involving
Tan and Uy and discovered that they were financing their own business using Arma
Traders resources. He also accused Haw for conniving with Tan and Uy in
Page 85 of 675

fraudulently making Arma Traders liable for their personal debts. He based this
conclusion from the following: First, basic human experience and common sense
tell us that a lender will not agree to extend additional loan to another person who
already owes a substantial sum from the lender in this case, petitioner Advance
Paper. Second, there was no other document proving the existence of the loan other
than the postdated checks. Third, the total of the purchase and loan transactions vis-
-vis the total amount of the postdated checks did not tally. Fourth, he found out that
the certified true copy of Advance Papers report with the Securities and Exchange
Commission (SEC report) did not reflect the P15,000,000.00 collectibles it had with
Arma Traders.35

Atty. Ang also testified that he already filed several cases of estafa and qualified
theft36 against Tan and Uy and that several warrants of arrest had been issued against
them.

In their pre-trial brief,37 the respondents named Sharow Ong, the secretary of Tan
and Uy, to testify on how Tan and Uy conspired with the petitioners to defraud Arma
Traders. However, the respondents did not present her on the witness stand.

The RTC Ruling

On June 18, 2001, the RTC ruled that the purchases on credit and loans were
sufficiently proven by the petitioners. Hence, the RTC ordered Arma Traders to pay
Advance Paper the sum of P15,321,798.25 with interest, and P1,500,000.00 for
attorneys fees, plus the cost of the suit.

The RTC held that the respondents failed to present hard, admissible and credible
evidence to prove that the sale invoices were forged or fictitious, and that the loan
transactions were personal obligations of Tan and Uy. Nonetheless, the RTC
dismissed the complaint against Tan, Uy, Ting, Gui and Ng due to the lack of
evidence showing that they bound themselves, either jointly or solidarily, with Arma
Traders for the payment of its account.38

Arma Traders appealed the RTC decision to the CA.

The CA Ruling

The CA held that the petitioners failed to prove by preponderance of evidence the
existence of the purchases on credit and loans based on the following grounds:
Page 86 of 675

First, Arma Traders was not liable for the loan in the absence of a board resolution
authorizing Tan and Uy to obtain the loan from Advance Paper. 39 The CA
acknowledged that Tan and Uy were Arma Traders authorized bank signatories.
However, the CA explained that this is not sufficient because the authority to sign
the checks is different from the required authority to contract a loan.40

Second, the CA also held that the petitioners presented incompetent and inadmissible
evidence to prove the purchases on credit since the sales invoices were
hearsay.41 The CA pointed out that Haws testimony as to the identification of the
sales invoices was not an exception to the hearsay rule because there was no showing
that the secretaries who prepared the sales invoices are already dead or unable to
testify as required by the Rules of Court.42 Further, the CA noted that the secretaries
were not identified or presented in court.43

Third, the CA ruling heavily relied on Ngs Appellants Brief44 which made the
detailed description of the "badges of fraud." The CA averred that the petitioners
failed to satisfactorily rebut the badges of fraud45 which include the inconsistencies
in:

(1) "Exhibit E-26," a postdated check, which was allegedly issued in favor of
Advance Paper but turned out to be a check payable to Top Line, Advance
Papers sister company;46

(2) "Sale Invoice No. 8946," an evidence to prove the existence of the
purchases on credit, whose photocopy failed to reflect the amount stated in
the duplicate copy,47 and;

(3) The SEC report of Advance Paper for the year ended 1994 reflected its
account receivables amounting to P219,705.19 only an amount far from the
claimed P15,321,798.25 receivables from Arma Traders.48

Hence, the CA set aside the RTCs order for Arma Traders to pay Advance Paper
the sum of P15,321,798.25, P1,500,000.00 for attorneys fees, plus cost of
suit.49 It affirmed the RTC decision dismissing the complaint against respondents
Tan, Uy, Ting, Gui and Ng.50 The CA also directed the petitioners to solidarily pay
each of the respondents their counterclaims of P250,000.00 as moral
damages, P250,000.00 as exemplary damages, and P250,000.00 as attorneys fees.51

The Petition
Page 87 of 675

The petitioners raise the following arguments.

First, Arma Traders led the petitioners to believe that Tan and Uy had the authority
to obtain loans since the respondents left the active and sole management of the
company to Tan and Uy since 1984. In fact, Ng testified that Arma Traders
stockholders and board of directors never conducted a meeting from 1984 to 1995.
Therefore, if the respondents position will be sustained, they will have the absurd
power to question all the business transactions of Arma Traders. 52 Citing Lipat v.
Pacific Banking Corporation,53 the petitioners said that if a corporation knowingly
permits one of its officers or any other agent to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts;
thus, the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agents authority.

Second, the petitioners argue that Haws testimony is not hearsay. They emphasize
that Haw has personal knowledge of the assailed purchases and loan transactions
because he dealt with the customers, and supervised and directed the preparation of
the sales invoices and the deliveries of the goods.54 Moreover, the petitioners stress
that the respondents never objected to the admissibility of the sales invoices on the
ground that they were hearsay.55

Third, the petitioners dispute the CAs findings on the existence of the badges of
fraud. The petitioners countered:

(1) The discrepancies between the figures in the 15 out of the 96 photocopies
and duplicate originals of the sales invoices amounting to P4,624.80 an
insignificant amount compared to the total purchases of P7,533,001.49
may have been caused by the failure to put the carbon paper.56 Besides, the
remaining 81 sales invoices are uncontroverted. The petitioners also raise
the point that this discrepancy is a nonissue because the duplicate
originals were surrendered in the RTC.57

(2) The respondents misled Haw during the cross-examination and took his
answer out of context.58 The petitioners argue that this maneuver is
insufficient to discredit Haws entire testimony.59

(3) Arma Traders should be faulted for indicating Top Line as the payee in
Exhibit E-26 or PBC check no. 091014. Moreover, Exhibit E-26 does not refer
Page 88 of 675

to PBC check no. 091014 but to PBC check no. 091032 payable to the order
of cash.60

(4) The discrepancy in the total amount of the checks which


is P15,130,363.87 as against the total obligation of P15,321,798.25 does not
necessarily prove that the transactions are spurious.61

(5) The difference in Advance Papers accounts receivables in the SEC report
and in Arma Traders obligation with Advance Paper was based on non-
existent evidence because Exhibit 294-NG does not pertain to any balance
sheet.62 Moreover, the term "accounts receivable" is not synonymous with
"cause of action." The respondents cannot escape their liability by simply
pointing the SEC report because the petitioners have established their cause
of action that the purchases on credit and loan transactions took place, the
respondents issued the dishonored checks to cover their debts, and they
refused to settle their obligation with Advance Paper.63

The Case for the Respondents

The respondents argue that the Petition for Review should be dismissed summarily
because of the following procedural grounds: first, for failure to comply with A.M.
No. 02-8-13-SC;64 and second, the CA decision is already final and executory since
the petitioners filed their Motion for Reconsideration out of time. They explain that
under the rules of the CA, if the last day for filing of any pleading falls on a Saturday
not a holiday, the same must be filed on said Saturday, as the Docket and Receiving
Section of the CA is open on a Saturday.65

The respondents argue that while as a general rule, a corporation is estopped from
denying the authority of its agents which it allowed to deal with the general public;
this is only true if the person dealing with the agent dealt in good faith. 66 In the
present case, the respondents claim that the petitioners are in bad faith because the
petitioners connived with Tan and Uy to make Arma Traders liable for the non-
existent deliveries of notebooks and other paper products.67 They also insist that the
sales invoices are manufactured evidence.68

As to the loans, the respondents aver that these were Tan and Uys personal
obligations with Advance Paper.69Moreover, while the three cashiers checks were
deposited in the account of Arma Traders, it is likewise true that Tan and Uy issued
Page 89 of 675

Arma Traders checks in favor of Advance Paper. All these checks are evidence of
Tan, Uy and Haws systematic conspiracy to siphon Arma Traders corporate funds.70

The respondents also seek to discredit Haws testimony on the basis of the
following. First, his testimony as regards the sales invoices is hearsay because he
did not personally prepare these documentary evidence.71Second, Haw suspiciously
never had any written authority from his own Board of Directors to lend
money. Third, the respondents also questioned why Advance Paper granted
the P7,000,000.00 loan without requiring Arma Traders to present any collateral or
guarantees.72

The Issues

The main procedural and substantive issues are:

I. Whether the petition for review should be dismissed for failure to comply
with A.M. No. 02-8-13-SC.

II. Whether the petition for review should be dismissed on the ground of
failure to file the motion for reconsideration with the CA on time.

III. Whether Arma Traders is liable to pay the loans applying the doctrine of
apparent authority.

IV. Whether the petitioners proved Arma Traders liability on the purchases
on credit by preponderance of evidence.

The Court's Ruling

We grant the petition.

The procedural issues.

First, the respondents correctly cited A.M. No. 02-8-13-SC dated February 19, 2008
which refer to the amendment of the 2004 Rules on Notarial Practice. It deleted the
Community Tax Certificate among the accepted proof of identity of the affiant
because of its inherent unreliability. The petitioners violated this when they used
Community Tax Certificate No. 05730869 in their Petition for
Review.73 Nevertheless, the defective jurat in the Verification/Certification of Non-
Forum Shopping is not a fatal defect because it is only a formal, not a jurisdictional,
Page 90 of 675

requirement that the Court may waive.74 Furthermore, we cannot simply ignore the
millions of pesos at stake in this case. To do so might cause grave injustice to a party,
a situation that this Court intends to avoid.

Second, no less than the CA itself waived the rules on the period to file the motion
for reconsideration. A review of the CA Resolution75 dated March 7, 2007, reveals
that the petitioners Motion for Reconsideration was denied because the allegations
were a mere rehash of what the petitioners earlier argued not because the motion
for reconsideration was filed out of time.

The substantive issues.

Arma Traders is liable to pay the


loans on the basis of the doctrine of
apparent authority.

The doctrine of apparent authority provides that a corporation will be estopped from
denying the agents authority if it knowingly permits one of its officers or any other
agent to act within the scope of an apparent authority, and it holds him out to the
public as possessing the power to do those acts.76 The doctrine of apparent authority
does not apply if the principal did not commit any acts or conduct which a third party
knew and relied upon in good faith as a result of the exercise of reasonable prudence.
Moreover, the agents acts or conduct must have produced a change of position to
the third partys detriment.77

In Inter-Asia Investment Industries v. Court of Appeals,78 we explained:

Under this provision [referring to Sec. 23 of the Corporation Code], the power and
responsibility to decide whether the corporation should enter into a contract that will
bind the corporation is lodged in the board, subject to the articles of incorporation,
bylaws, or relevant provisions of law. However, just as a natural person who may
authorize another to do certain acts for and on his behalf, the board of directors
may validly delegate some of its functions and powers to officers, committees
or agents. The authority of such individuals to bind the corporation is generally
derived from law, corporate bylaws or authorization from the board, either
expressly or impliedly by habit, custom or acquiescence in the general course
of business, viz.:
Page 91 of 675

A corporate officer or agent may represent and bind the corporation in transactions
with third persons to the extent that [the] authority to do so has been conferred upon
him, and this includes powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers
added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused person dealing with the
officer or agent to believe that it has conferred.

[A]pparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words the apparent authority
to act in general, with which it clothes him; or (2) the acquiescence in his acts of a
particular nature, with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers. It requires presentation of evidence
of similar act(s) executed either in its favor or in favor of other parties. It is not
the quantity of similar acts which establishes apparent authority, but the
vesting of a corporate officer with the power to bind the corporation. [emphases
and underscores ours]

In Peoples Aircargo and Warehousing Co., Inc. v. Court of Appeals,79 we ruled that
the doctrine of apparent authority is applied when the petitioner, through its
president Antonio Punsalan Jr., entered into the First Contract without first securing
board approval. Despite such lack of board approval, petitioner did not object to or
repudiate said contract, thus "clothing" its president with the power to bind the
corporation.

"Inasmuch as a corporate president is often given general supervision and control


over corporate operations, the strict rule that said officer has no inherent power to
act for the corporation is slowly giving way to the realization that such officer has
certain limited powers in the transaction of the usual and ordinary business of the
corporation."80 "In the absence of a charter or bylaw provision to the contrary,
the president is presumed to have the authority to act within the domain of the
general objectives of its business and within the scope of his or her usual
duties."81

In the present petition, we do not agree with the CAs findings that Arma Traders is
not liable to pay the loans due to the lack of board resolution authorizing Tan and
Uy to obtain the loans. To begin with, Arma Traders Articles of
Incorporation82 provides that the corporation may borrow or raise money to meet
Page 92 of 675

the financial requirements of its business by the issuance of bonds, promissory


notes and other evidence of indebtedness. Likewise, it states that Tan and Uy are
not just ordinary corporate officers and authorized bank signatories because they are
also Arma Traders incorporators along with respondents Ng and Ting, and Pedro
Chao. Furthermore, the respondents, through Ng who is Arma Traders corporate
secretary, incorporator, stockholder and director, testified that the sole management
of Arma Traders was left to Tan and Uy and that he and the other officers never
dealt with the business and management of Arma Traders for 14 years. He also
confirmed that since 1984 up to the filing of the complaint against Arma Traders,
its stockholders and board of directors never had its meeting.83

Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to
transact with third persons without the necessary written authority from its non-
performing board of directors. Arma Traders failed to take precautions to prevent its
own corporate officers from abusing their powers. Because of its own laxity in its
business dealings, Arma Traders is now estopped from denying Tan and Uys
authority to obtain loan from Advance Paper.

We also reject the respondents claim that Advance Paper, through Haw, connived
with Tan and Uy. The records do not contain any evidence to prove that the loan
transactions were personal to Tan and Uy. A different conclusion might have been
inferred had the cashiers checks been issued in favor of Tan and Uy, and had the
postdated checks in favor of Advance Paper been either Tan and/or Uys, or had the
respondents presented convincing evidence to show how Tan and Uy conspired with
the petitioners to defraud Arma Traders.84 We note that the respondents initially
intended to present Sharow Ong, the secretary of Tan and Uy, to testify on how
Advance Paper connived with Tan and Uy. As mentioned, the respondents failed to
present her on the witness stand.

The respondents failed to object to


the admissibility of the sales invoices
on the ground that they are hearsay

The rule is that failure to object to the offered evidence renders it admissible, and
the court cannot, on its own, disregard such evidence.85 When a party desires the
court to reject the evidence offered, it must so state in the form of a timely objection
and it cannot raise the objection to the evidence for the first time on appeal. Because
of a partys failure to timely object, the evidence becomes part of the evidence in the
Page 93 of 675

case. Thereafter, all the parties are considered bound by any outcome arising from
the offer of evidence properly presented.86

In Heirs of Policronio M. Ureta, Sr. v. Heirs of Liberato M. Ureta,87 however, we


held:

[H]earsay evidence whether objected to or not cannot be given credence for having
no probative value.1wphi1 This principle, however, has been relaxed in cases
where, in addition to the failure to object to the admissibility of the subject
evidence, there were other pieces of evidence presented or there were other
circumstances prevailing to support the fact in issue. (emphasis and underscore
ours; citation omitted)

We agree with the respondents that with respect to the identification of the sales
invoices, Haws testimony was hearsay because he was not present during its
preparation88 and the secretaries who prepared them were not presented to identify
them in court. Further, these sales invoices do not fall within the exceptions to the
hearsay rule even under the "entries in the course of business" because the petitioners
failed to show that the entrant was deceased or was unable to testify.89

But even though the sales invoices are hearsay, nonetheless, they form part of the
records of the case for the respondents failure to object as to the admissibility of the
sales invoices on the ground that they are hearsay.90Based on the records, the
respondents through Ng objected to the offer "for the purpose [to] which they are
being offered" only not on the ground that they were hearsay.91

The petitioners have proven their


claims for the unpaid purchases on
credit by preponderance of evidence.

We are not convinced by the respondents argument that the purchases are spurious
because no less than Uy admitted that all the checks issued were in payments of
the contractual obligations of the Arma Traders with Advance
Paper.92 Moreover, there are other pieces of evidence to prove the existence of the
purchases other than the sales invoices themselves. For one, Arma Traders
postdated checks evince the existence of the purchases on credit. Moreover, Haw
testified that within one or two weeks, Arma Traders paid the purchases in the form
of postdated checks. He personally collected these checks on Saturdays and upon
Page 94 of 675

receiving the checks, he surrendered to Arma Traders the original of the sales
invoices while he retained the duplicate of the invoices.93

The respondents attempted to impugn the credibility of Haw by pointing to the


inconsistencies they can find from the transcript of stenographic notes. However, we
are not persuaded that these inconsistencies are sufficiently pervasive to affect the
totality of evidence showing the general relationship between Advance Paper and
Arma Traders.

Additionally, the issue of credibility of witnesses is to be resolved primarily by the


trial court because it is in the better position to assess the credibility of witnesses as
it heard the testimonies and observed the deportment and manner of testifying of the
witnesses. Accordingly, its findings are entitled to great respect and will not be
disturbed on appeal in the absence of any showing that the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and substance
which would have affected the result of the case.94

In the present case, the RTC judge took into consideration the substance and the
manner by which Haw answered each propounded questions to him in the witness
stand. Hence, the minor inconsistencies in Haws testimony notwithstanding, the
RTC held that the respondents claim that the purchase and loan transactions were
spurious is "not worthy of serious consideration." Besides, the respondents failed to
convince us that the RTC judge overlooked, misunderstood, or misapplied some
facts or circumstances of weight and substance which would have affected the result
of the case.

On the other hand, we agree with the petitioners that the discrepancies in the
photocopy of the sales invoices and its duplicate copy have been sufficiently
explained. Besides, this is already a non-issue since the duplicate copies were
surrendered in the RTC.95 Furthermore, the fact that the value of Arma Traders'
checks does not tally with the total amount of their obligation with Advance Paper
is not inconsistent with the existence of the purchases and loan transactions.

As against the case and the evidence Advance Paper presented, the respondents
relied on the core theory of an alleged conspiracy between Tan, Uy and Haw to
defraud Arma Traders. However, the records are bereft of supporting evidence to
prove the alleged conspiracy. Instead, the respondents simply dwelled on the minor
inconsistencies from the petitioners' evidence that the respondents appear to have
magnified. From these perspectives, the preponderance of evidence thus lies heavily
Page 95 of 675

in the petitioners' favor as the RTC found. For this reason, we find the petition
meritorious.

WHEREFORE, premises considered, we GRANT the petition. The decision dated


March 31, 2006 and the resolution dated March 7, 2007 of the Court of Appeals in
CA-G.R. CV No. 71499 are REVERSED and SET ASIDE. The Regional Trial Court
decision in Civil Case No. 94-72526 dated June 18, 2001 is REINSTATED. No
costs.

SO ORDERED.

RYUICHI YAMAMOTO, G.R. No. 150283


Petitioner,
Present:

QUISUMBING,* J., Chairperson,


CARPIO MORALES,*
- versus - TINGA,
VELASCO, JR., and
BRION, JJ.

NISHINO LEATHER Promulgated:


INDUSTRIES, INC. and IKUO April 16, 2008
NISHINO,
Respondents.
x-------------------------------------------------x
Page 96 of 675

DECISION

CARPIO MORALES, J.:


In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national,
organized under Philippine laws Wako Enterprises Manila, Incorporated (WAKO),
a corporation engaged principally in leather tanning, now known as Nishino Leather
Industries, Inc. (NLII), one of herein respondents.

In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a
Japanese national, forged a Memorandum of Agreement under which they agreed to
enter into a joint venture wherein Nishino would acquire such number of shares of
stock equivalent to 70% of the authorized capital stock of WAKO.

Eventually, Nishino and his brother[1] Yoshinobu Nishino (Yoshinobu)


acquired more than 70% of the authorized capital stock of WAKO, reducing
Yamamotos investment therein to, by his claim, 10%,[2] less than 10% according to
Nishino.[3]

The corporate name of WAKO was later changed to, as reflected earlier, its
current name NLII.

Negotiations subsequently ensued in light of a planned takeover of NLII by


Nishino who would buy-out the shares of stock of Yamamoto. In the course of the
negotiations, Yoshinobu and Nishinos counsel Atty. Emmanuel G. Doce (Atty.
Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent portions
of which follow:

Hereunder is a simple memorandum of the subject matters


discussed with me by Mr. Yoshinobu Nishino yesterday, October 29 th,
based on the letter of Mr. Ikuo Nishino from Japan, and which I am
now transmitting to you.[4]

xxxx

12. Machinery and Equipment:


Page 97 of 675

The following machinery/equipment have been contributed by


you to the company:

Splitting machine - 1 unit


Samming machine - 1 unit
Forklift - 1 unit
Drums - 4 units
Toggling machine - 2 units

Regarding the above machines, you may take them out with you (for
your own use and sale) if you want, provided, the value of such
machines is deducted from your and Wakos capital contributions,
which will be paid to you.

Kindly let me know of your comments on all the above,


soonest.

x x x x[5] (Emphasis and underscoring supplied)

On the basis of such letter, Yamamoto attempted to recover the machineries


and equipment which were, by Yamamotos admission, part of his investment in the
corporation,[6] but he was frustrated by respondents, drawing Yamamoto to file
on January 15, 1992 before the Regional Trial Court (RTC) of Makati a
complaint[7] against them for replevin.

Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed
a bond. [8]

In their Answer with Counterclaim,[9] respondents claimed that the


machineries and equipment subject of replevin form part of Yamamotos capital
contributions in consideration of his equity in NLII and should thus be treated as
corporate property; and that the above-said letter of Atty. Doce to Yamamoto was
merely a proposal, conditioned on [Yamamotos] sell-out to . . . Nishino of his entire
equity,[10] which proposal was yet to be authorized by the stockholders and Board of
Directors of NLII.
Page 98 of 675

By way of Counterclaim, respondents, alleging that they suffered damage due


to the seizure via the implementation of the writ of replevin over the machineries
and equipment, prayed for the award to them of moral and exemplary damages,
attorneys fees and litigation expenses, and costs of suit.

The trial court, by Decision of June 9, 1995, decided the case in favor of
Yamamoto,[11] disposing thus:

WHEREFORE, judgment is hereby rendered: (1)


declaring plaintiff as the rightful owner and possessor of the
machineries in question, and making the writ of seizure permanent; (2)
ordering defendants to pay plaintiff attorneys fees and expenses of
litigation in the amount of Fifty Thousand Pesos (P50,000.00),
Philippine Currency; (3) dismissing defendants counterclaims for lack
of merit; and (4) ordering defendants to pay the costs of suit.

SO ORDERED.[12] (Underscoring supplied)

On appeal,[13] the Court of Appeals held in favor of herein respondents and


accordingly reversed the RTC decision and dismissed the complaint.[14] In so
holding, the appellate court found that the machineries and equipment claimed by
Yamamoto are corporate property of NLII and may not thus be retrieved without the
authority of the NLII Board of Directors;[15] and that petitioners argument that
Nishino and Yamamoto cannot hide behind the shield of corporate fiction does not
lie,[16] nor does petitioners invocation of the doctrine of promissory estoppel.[17] At
the same time, the Court of Appeals found no ground to support respondents
Counterclaim.[18]

The Court of Appeals having denied[19] his Motion for


[20] [21]
Reconsideration, Yamamoto filed the present petition, faulting the Court of
Appeals

A.
Page 99 of 675

x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION


SHOULD NOT BE PIERCED IN THE CASE AT BAR.

B.

x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY


ESTOPPEL DOES NOT APPLY TO THE CASE AT BAR.

C.

x x x IN HOLDING THAT RESPONDENTS ARE NOT LIABLE FOR


ATTORNEYS FEES.[22]

The resolution of the petition hinges, in the main, on whether the advice in the
letter of Atty. Doce that Yamamoto may retrieve the machineries and equipment,
which admittedly were part of his investment, bound the corporation. The Court
holds in the negative.

Indeed, without a Board Resolution authorizing respondent Nishino to act for


and in behalf of the corporation, he cannot bind the latter. Under the Corporation
Law, unless otherwise provided, corporate powers are exercised by the Board of
Directors.[23]

Urging this Court to pierce the veil of corporate fiction, Yamamoto


argues, viz:

During the negotiations, the issue as to the ownership of


the Machiner[ies] never came up. Neither did the issue on the proper
procedure to be taken to execute the complete take-over of the
Company come up since Ikuo, Yoshinobu, and Yamamoto were the
owners thereof, the presence of other stockholders being only for the
purpose of complying with the minimum requirements of the law.

What course of action the Company decides to do or not to do


depends not on the other members of the Board of
Page 100 of 675

Directors. It depends on what Ikuo and Yoshinobu decide. The


Company is but a mere instrumentality of Ikuo
[and] Yoshinobu.[24]

xxxx
x x x The Company hardly holds board meetings. It has an
inactive board, the directors are directors in name only and are there to
do the bidding of the Nish[i]nos, nothing more. Its minutes are paper
minutes. x x x [25]

xxxx

The fact that the parties started at a 70-30 ratio and Yamamotos
percentage declined to 10% does not mean the 20% went to others. x x
x The 20% went to no one else but Ikuo himself.x x x Yoshinobu is the
younger brother of Ikuo and has no say at all in the business. Only
Ikuo makes the decisions. There were, therefore, no other members
of the Board who have not given their approval.[26] (Emphasis and
underscoring supplied)

While the veil of separate corporate personality may be pierced when the
corporation is merely an adjunct, a business conduit, or alter ego of a person, [27] the
mere ownership by a single stockholder of even all or nearly all of the capital stocks
of a corporation is not by itself a sufficient ground to disregard the separate corporate
personality.[28]

The elements determinative of the applicability of the doctrine of piercing the


veil of corporate fiction follow:
1. Control, not mere majority or complete stock control,
but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind,
will or existence of its own;

2. Such control must have been used by the defendant to commit


fraud or wrong, to perpetuate the violation of a statutory or other
Page 101 of 675

positive legal duty, or dishonest and unjust act in contravention of the


plaintiffs legal rights; and

3. The aforesaid control and breach of duty must proximately


cause the injury or unjust loss complained of.

The absence of any one of these elements prevents piercing the


corporate veil. In applying the instrumentality or alter ego doctrine, the
courts are concerned with reality and not form, with how the
corporation operated and the individual defendants relationship to that
operation.[29] (Italics in the original; emphasis and underscoring
supplied)

In relation to the second element, to disregard the separate juridical personality of a


corporation, the wrongdoing or unjust act in contravention of a plaintiffs legal rights
must be clearly and convincingly established; it cannot be presumed.[30] Without a
demonstration that any of the evils sought to be prevented by the doctrine is present,
it does not apply.[31]

In the case at bar, there is no showing that Nishino used the separate
personality of NLII to unjustly act or do wrong to Yamamoto in contravention of his
legal rights.

Yamamoto argues, in another vein, that promissory estoppel lies against


respondents, thus:

Under the doctrine of promissory estoppel, x x x estoppel may


arise from the making of a promise, even though without consideration,
if it was intended that the promise should be relied upon and in fact it
was relied upon, and if a refusal to enforce it would be virtually to
sanction the perpetration of fraud or would result in other injustice.

x x x Ikuo and Yoshinobu wanted Yamamoto out of the


Company. For this purpose negotiations were had between the
parties. Having expressly given Yamamoto, through the Letter and
through a subsequent meeting at the Manila Peninsula where Ikuo
Page 102 of 675

himself confirmed that Yamamoto may take out the Machinery from
the Company anytime, respondents should not be allowed to turn
around and do the exact opposite of what they have represented they
will do.

In paragraph twelve (12) of the Letter, Yamamoto was expressly


advised that he could take out the Machinery if he wanted to so,
provided that the value of said machines would be deducted from his
capital contribution x x x.

xxxx

Respondents cannot now argue that they did not intend for
Yamamoto to rely upon the Letter. That was the purpose of the Letter
to begin with. Petitioner[s] in fact, relied upon said Letter and such
reliance was further strengthened during their meeting at
the Manila Peninsula.

To sanction respondents attempt to evade their obligation would


be to sanction the perpetration of fraud and injustice against
petitioner.[32] (Underscoring supplied)

It bears noting, however, that the aforementioned paragraph 12 of the letter is


followed by a request for Yamamoto to give his comments on all the above,
soonest.[33]

What was thus proffered to Yamamoto was not a promise, but a mere offer,
subject to his acceptance. Without acceptance, a mere offer produces no
obligation.[34]
Thus, under Article 1181 of the Civil Code, [i]n conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which constitutes the condition. In the
case at bar, there is no showing of compliance with the condition for allowing
Yamamoto to take the machineries and equipment, namely, his agreement to the
deduction of their value from his capital contribution due him in the buy-out of his
Page 103 of 675

interests in NLII. Yamamotos allegation that he agreed to the condition[35] remained


just that, no proof thereof having been presented.

The machineries and equipment, which comprised Yamamotos investment in


NLII,[36] thus remained part of the capital property of the corporation.[37]

It is settled that the property of a corporation is not the property of its


stockholders or members.[38] Under the trust fund doctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors which are preferred over the stockholders in the
distribution of corporate assets.[39]The distribution of corporate assets and property
cannot be made to depend on the whims and caprices of the stockholders, officers,
or directors of the corporation unless the indispensable conditions and procedures
for the protection of corporate creditors are followed.[40]

WHEREFORE, the petition is DENIED.

Costs against petitioner.

SO ORDERED.

VALLE VERDE COUNTRY CLUB, G.R. No. 151969


INC., ERNESTO VILLALUNA,
RAY GAMBOA, AMADO Present:
M. SANTIAGO, JR., FORTUNATO
DEE, AUGUSTO SUNICO, VICTOR
Page 104 of 675

SALTA, FRANCISCO ORTIGAS QUISUMBING, J., Chairperson,


III, ERIC ROXAS, in their capacities
CARPIO-MORALES,
as members of the Board of Directors
of Valle Verde Country Club, Inc., BRION,
and JOSE RAMIREZ,
Petitioners, DEL CASTILLO, and
ABAD, JJ.
- versus -

VICTOR AFRICA,
Respondent.

Promulgated:

September 4, 2009
x ---------------------------------------------------------------------------------------------- x

DECISION

BRION, J.:

In this petition for review on certiorari,[1] the parties raise a legal question on
corporate governance: Can the members of a corporations board of directors elect
another director to fill in a vacancy caused by the resignation of a hold-over director?

THE FACTUAL ANTECEDENTS


Page 105 of 675

On February 27, 1996, during the Annual Stockholders Meeting of petitioner


Valle Verde Country Club, Inc. (VVCC), the following were elected as members of
the VVCC Board of Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan),
Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M.
Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.[2] In the years 1997,
1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the
stockholders meeting could not be obtained. Consequently, the above-named
directors continued to serve in the VVCC Board in a hold-over capacity.

On September 1, 1998, Dinglasan resigned from his position as member of


the VVCC Board. In a meeting held on October 6, 1998, the remaining directors,
still constituting a quorum of VVCCs nine-member board, elected Eric Roxas
(Roxas) to fill in the vacancy created by the resignation of Dinglasan.

A year later, or on November 10, 1998, Makalintal also resigned as member


of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was elected
by the remaining members of the VVCC Board on March 6, 2001.

Respondent Africa (Africa), a member of VVCC, questioned the election of


Roxas and Ramirez as members of the VVCC Board with the Securities and
Exchange Commission (SEC) and the Regional Trial Court (RTC), respectively. The
SEC case questioning the validity of Roxas appointment was docketed as SEC Case
No. 01-99-6177.The RTC case questioning the validity of Ramirez appointment was
docketed as Civil Case No. 68726.

In his nullification complaint[3] before the RTC, Africa alleged that the
election of Roxas was contrary to Section 29, in relation to Section 23, of the
Corporation Code of the Philippines (Corporation Code). These provisions read:

Sec. 23. The board of directors or trustees. - Unless otherwise


provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of
Page 106 of 675

directors or trustees to be elected from among the holders of stocks, or


where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are
elected and qualified.

xxxx

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy


occurring in the board of directors or trustees other than by
removal by the stockholders or members or by expiration of term, may
be filled by the vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise, said vacancies
must be filled by the stockholders in a regular or special meeting
called for that purpose. A director or trustee so elected to fill a vacancy
shall be elected only for the unexpired term of his predecessor in office.
xxx. [Emphasis supplied.]

Africa claimed that a year after Makalintals election as member of the VVCC Board
in 1996, his [Makalintals] term as well as those of the other members of the VVCC
Board should be considered to have already expired. Thus, according to Africa, the
resulting vacancy should have been filled by the stockholders in a regular or special
meeting called for that purpose, and not by the remaining members of the VVCC
Board, as was done in this case.

Africa additionally contends that for the members to exercise the authority to
fill in vacancies in the board of directors, Section 29 requires, among others, that
there should be an unexpired term during which the successor-member shall
serve. Since Makalintals term had already expired with the lapse of the one-year
term provided in Section 23, there is no more unexpired term during which Ramirez
could serve.
Page 107 of 675

Through a partial decision[4] promulgated on January 23, 2002, the RTC ruled in
favor of Africa and declared the election of Ramirez, as Makalintals replacement, to
the VVCC Board as null and void.

Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the election
of Roxas as member of the VVCC Board, vice hold-over director Dinglasan. While
VVCC manifested its intent to appeal from the SECs ruling, no petition was actually
filed with the Court of Appeals; thus, the appellate court considered the case closed
and terminated and the SECs ruling final and executory.[5]

THE PETITION

VVCC now appeals to the Court to assail the RTCs January 23, 2002 partial decision
for being contrary to law and jurisprudence. VVCC made a direct resort to the
Court via a petition for review on certiorari, claiming that the sole issue in the
present case involves a purely legal question.

As framed by VVCC, the issue for resolution is whether the remaining


directors of the corporations Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director.

Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy
created by the resignation of a hold-over director is expressly granted to the
remaining members of the corporations board of directors.

Under the above-quoted Section 29 of the Corporation Code, a vacancy


occurring in the board of directors caused by the expiration of a members term shall
be filled by the corporations stockholders. Correlating Section 29 with Section 23 of
the same law, VVCC alleges that a members term shall be for one year and until
his successor is elected and qualified; otherwise stated, a members term expires
only when his successor to the Board is elected and qualified. Thus, until such time
as [a successor is] elected or qualified in an annual election where a quorum is
Page 108 of 675

present, VVCC contends that the term of [a member] of the board of directors has
yet not expired.

As the vacancy in this case was caused by Makalintals resignation, not by the
expiration of his term, VVCC insists that the board rightfully appointed Ramirez to
fill in the vacancy.

In support of its arguments, VVCC cites the Courts ruling in the 1927 El
Hogar[6] case which states:

Owing to the failure of a quorum at most of the general meetings


since the respondent has been in existence, it has been the practice
of the directors to fill in vacancies in the directorate by choosing
suitable persons from among the stockholders. This custom finds its
sanction in Article 71 of the By-Laws, which reads as follows:

Art. 71. The directors shall elect from among the


shareholders members to fill the vacancies that may occur
in the board of directors until the election at the general
meeting.

xxxx

Upon failure of a quorum at any annual meeting the directorate


naturally holds over and continues to function until another directorate
is chosen and qualified. Unless the law or the charter of a corporation
expressly provides that an office shall become vacant at the expiration
of the term of office for which the officer was elected, the general rule
is to allow the officer to hold over until his successor is duly qualified.
Mere failure of a corporation to elect officers does not terminate the
terms of existing officers nor dissolve the corporation. The doctrine
above stated finds expression in article 66 of the by-laws of the
respondent which declares in so many words that directors shall hold
office "for the term of one year or until their successors shall have been
elected and taken possession of their offices." xxx.
Page 109 of 675

It results that the practice of the directorate of filling vacancies by


the action of the directors themselves is valid. Nor can any exception
be taken to the personality of the individuals chosen by the directors to
fill vacancies in the body. [Emphasis supplied.]

Africa, in opposing VVCCs contentions, raises the same arguments that he did
before the trial court.

THE COURTS RULING

We are not persuaded by VVCCs arguments and, thus, find its petition
unmeritorious.

To repeat, the issue for the Court to resolve is whether the remaining
directors of a corporations Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director. The
resolution of this legal issue is significantly hinged on the determination of what
constitutes a directors term of office.

The holdover period is not part of the term


of office of a member of the board of
directors

The word term has acquired a definite meaning in jurisprudence. In several


cases, we have defined term as the time during which the officer may claim to
hold the office as of right, and fixes the interval after which the several incumbents
shall succeed one another.[7] The term of office is not affected by the
holdover.[8] The term is fixed by statute and it does not change simply because the
office may have become vacant, nor because the incumbent holds over in office
Page 110 of 675

beyond the end of the term due to the fact that a successor has not been elected and
has failed to qualify.

Term is distinguished from tenure in that an officers tenure represents the


term during which the incumbent actually holds office. The tenure may be
shorter (or, in case of holdover, longer) than the term for reasons within or beyond
the power of the incumbent.

Based on the above discussion, when Section 23[9] of the Corporation Code
declares that the board of directorsshall hold office for one (1) year until their
successors are elected and qualified, we construe the provision to mean that the term
of the members of the board of directors shall be only for one year; their term
expires one year after election to the office. The holdover period that time from the
lapse of one year from a members election to the Board and until his successors
election and qualification is not part of the directors original term of office, nor is it
a new term; the holdover period, however, constitutes part of his tenure. Corollary,
when an incumbent member of the board of directors continues to serve in a holdover
capacity, it implies that the office has a fixed term, which has expired, and the
incumbent is holding the succeeding term.[10]

After the lapse of one year from his election as member of the VVCC Board in 1996,
Makalintals term of office is deemed to have already expired. That he continued to
serve in the VVCC Board in a holdover capacity cannot be considered as extending
his term. To be precise, Makalintals term of office began in 1996 and expired in
1997, but, by virtue of the holdover doctrine in Section 23 of the Corporation Code,
he continued to hold office until his resignation on November 10, 1998. This
holdover period, however, is not to be considered as part of his term, which, as
declared, had already expired.

With the expiration of Makalintals term of office, a vacancy resulted which,


by the terms of Section 29[11] of the Corporation Code, must be filled by the
stockholders of VVCC in a regular or special meeting called for the purpose. To
assume as VVCC does that the vacancy is caused by Makalintals resignation in 1998,
not by the expiration of his term in 1997, is both illogical and unreasonable. His
Page 111 of 675

resignation as a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintals term had been created long before his
resignation.

The powers of the corporations board of


directors emanate from its stockholders

VVCCs construction of Section 29 of the Corporation Code on the authority to fill


up vacancies in the board of directors, in relation to Section 23 thereof, effectively
weakens the stockholders power to participate in the corporate governance by
electing their representatives to the board of directors. The board of directors is the
directing and controlling body of the corporation. It is a creation of the stockholders
and derives its power to control and direct the affairs of the corporation from them.
The board of directors, in drawing to themselves the powers of the corporation,
occupies a position of trusteeship in relation to the stockholders, in the sense that the
board should exercise not only care and diligence, but utmost good faith in the
management of corporate affairs.[12]

The underlying policy of the Corporation Code is that the business and affairs of a
corporation must be governed by a board of directors whose members have stood
for election, and who have actually been elected by the stockholders, on an annual
basis. Only in that way can the directors' continued accountability to shareholders,
and the legitimacy of their decisions that bind the corporation's stockholders, be
assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own.[13]

This theory of delegated power of the board of directors similarly explains why,
under Section 29 of the Corporation Code, in cases where the vacancy in the
corporations board of directors is caused not by the expiration of a members term,
the successor so elected to fill in a vacancy shall be elected only for the unexpired
term of the his predecessor in office. The law has authorized the remaining members
of the board to fill in a vacancy only in specified instances, so as not to retard or
impair the corporations operations; yet, in recognition of the stockholders right to
elect the members of the board, it limited the period during which the successor shall
serve only to the unexpired term of his predecessor in office.
Page 112 of 675

While the Court in El Hogar approved of the practice of the directors to fill
vacancies in the directorate, we point out that this ruling was made before the present
Corporation Code was enacted[14] and before its Section 29 limited the instances
when the remaining directors can fill in vacancies in the board, i.e., when the
remaining directors still constitute a quorum and when the vacancy is caused for
reasons other than by removal by the stockholders or by expiration of the term.

It also bears noting that the vacancy referred to in Section 29 contemplates


a vacancy occurring within the directors term of office. When a vacancy is created
by the expiration of a term, logically, there is no more unexpired term to speak
of. Hence, Section 29 declares that it shall be the corporations stockholders who
shall possess the authority to fill in a vacancy caused by the expiration of a members
term.

As correctly pointed out by the RTC, when remaining members of the VVCC
Board elected Ramirez to replace Makalintal, there was no more unexpired term to
speak of, as Makalintals one-year term had already expired. Pursuant to law, the
authority to fill in the vacancy caused by Makalintals leaving lies with the VVCCs
stockholders, not the remaining members of its board of directors.

WHEREFORE, we DENY the petitioners petition for review on certiorari,


and AFFIRM the partial decision of the Regional Trial Court, Branch 152, Manila,
promulgated on January 23, 2002, in Civil Case No. 68726. Costs against the
petitioners.

SO ORDERED.
Page 113 of 675

VALLE VERDE COUNTRY CLUB, G.R. No. 151969


INC., ERNESTO VILLALUNA,
RAY GAMBOA, AMADO Present:
M. SANTIAGO, JR., FORTUNATO
DEE, AUGUSTO SUNICO, VICTOR QUISUMBING, J., Chairperson,
SALTA, FRANCISCO ORTIGAS
CARPIO-MORALES,
III, ERIC ROXAS, in their capacities
as members of the Board of Directors BRION,
of Valle Verde Country Club, Inc.,
and JOSE RAMIREZ, DEL CASTILLO, and
Petitioners, ABAD, JJ.

- versus -

VICTOR AFRICA,
Respondent.
Promulgated:

September 4, 2009
x ---------------------------------------------------------------------------------------------- x

DECISION

BRION, J.:

In this petition for review on certiorari,[1] the parties raise a legal question on
corporate governance: Can the members of a corporations board of directors elect
another director to fill in a vacancy caused by the resignation of a hold-over director?

THE FACTUAL ANTECEDENTS


Page 114 of 675

On February 27, 1996, during the Annual Stockholders Meeting of petitioner


Valle Verde Country Club, Inc. (VVCC), the following were elected as members of
the VVCC Board of Directors: Ernesto Villaluna, Jaime C. Dinglasan (Dinglasan),
Eduardo Makalintal (Makalintal), Francisco Ortigas III, Victor Salta, Amado M.
Santiago, Jr., Fortunato Dee, Augusto Sunico, and Ray Gamboa.[2] In the years 1997,
1998, 1999, 2000, and 2001, however, the requisite quorum for the holding of the
stockholders meeting could not be obtained. Consequently, the above-named
directors continued to serve in the VVCC Board in a hold-over capacity.

On September 1, 1998, Dinglasan resigned from his position as member of


the VVCC Board. In a meeting held on October 6, 1998, the remaining directors,
still constituting a quorum of VVCCs nine-member board, elected Eric Roxas
(Roxas) to fill in the vacancy created by the resignation of Dinglasan.

A year later, or on November 10, 1998, Makalintal also resigned as member


of the VVCC Board. He was replaced by Jose Ramirez (Ramirez), who was elected
by the remaining members of the VVCC Board on March 6, 2001.

Respondent Africa (Africa), a member of VVCC, questioned the election of


Roxas and Ramirez as members of the VVCC Board with the Securities and
Exchange Commission (SEC) and the Regional Trial Court (RTC), respectively. The
SEC case questioning the validity of Roxas appointment was docketed as SEC Case
No. 01-99-6177.The RTC case questioning the validity of Ramirez appointment was
docketed as Civil Case No. 68726.

In his nullification complaint[3] before the RTC, Africa alleged that the
election of Roxas was contrary to Section 29, in relation to Section 23, of the
Corporation Code of the Philippines (Corporation Code). These provisions read:
Page 115 of 675

Sec. 23. The board of directors or trustees. - Unless otherwise


provided in this Code, the corporate powers of all corporations formed
under this Code shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of
directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are
elected and qualified.

xxxx

Sec. 29. Vacancies in the office of director or trustee. - Any vacancy


occurring in the board of directors or trustees other than by
removal by the stockholders or members or by expiration of term, may
be filled by the vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise, said vacancies
must be filled by the stockholders in a regular or special meeting
called for that purpose. A director or trustee so elected to fill a vacancy
shall be elected only for the unexpired term of his predecessor in office.
xxx. [Emphasis supplied.]

Africa claimed that a year after Makalintals election as member of the VVCC Board
in 1996, his [Makalintals] term as well as those of the other members of the VVCC
Board should be considered to have already expired. Thus, according to Africa, the
resulting vacancy should have been filled by the stockholders in a regular or special
meeting called for that purpose, and not by the remaining members of the VVCC
Board, as was done in this case.

Africa additionally contends that for the members to exercise the authority to
fill in vacancies in the board of directors, Section 29 requires, among others, that
there should be an unexpired term during which the successor-member shall
Page 116 of 675

serve. Since Makalintals term had already expired with the lapse of the one-year
term provided in Section 23, there is no more unexpired term during which Ramirez
could serve.

Through a partial decision[4] promulgated on January 23, 2002, the RTC ruled in
favor of Africa and declared the election of Ramirez, as Makalintals replacement, to
the VVCC Board as null and void.

Incidentally, the SEC issued a similar ruling on June 3, 2003, nullifying the election
of Roxas as member of the VVCC Board, vice hold-over director Dinglasan. While
VVCC manifested its intent to appeal from the SECs ruling, no petition was actually
filed with the Court of Appeals; thus, the appellate court considered the case closed
and terminated and the SECs ruling final and executory.[5]

THE PETITION

VVCC now appeals to the Court to assail the RTCs January 23, 2002 partial decision
for being contrary to law and jurisprudence. VVCC made a direct resort to the
Court via a petition for review on certiorari, claiming that the sole issue in the
present case involves a purely legal question.

As framed by VVCC, the issue for resolution is whether the remaining


directors of the corporations Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director.

Citing law and jurisprudence, VVCC posits that the power to fill in a vacancy
created by the resignation of a hold-over director is expressly granted to the
remaining members of the corporations board of directors.

Under the above-quoted Section 29 of the Corporation Code, a vacancy


occurring in the board of directors caused by the expiration of a members term shall
Page 117 of 675

be filled by the corporations stockholders. Correlating Section 29 with Section 23 of


the same law, VVCC alleges that a members term shall be for one year and until
his successor is elected and qualified; otherwise stated, a members term expires
only when his successor to the Board is elected and qualified. Thus, until such time
as [a successor is] elected or qualified in an annual election where a quorum is
present, VVCC contends that the term of [a member] of the board of directors has
yet not expired.

As the vacancy in this case was caused by Makalintals resignation, not by the
expiration of his term, VVCC insists that the board rightfully appointed Ramirez to
fill in the vacancy.

In support of its arguments, VVCC cites the Courts ruling in the 1927 El
Hogar[6] case which states:

Owing to the failure of a quorum at most of the general meetings


since the respondent has been in existence, it has been the practice
of the directors to fill in vacancies in the directorate by choosing
suitable persons from among the stockholders. This custom finds its
sanction in Article 71 of the By-Laws, which reads as follows:

Art. 71. The directors shall elect from among the


shareholders members to fill the vacancies that may occur
in the board of directors until the election at the general
meeting.

xxxx

Upon failure of a quorum at any annual meeting the directorate


naturally holds over and continues to function until another directorate
is chosen and qualified. Unless the law or the charter of a corporation
expressly provides that an office shall become vacant at the expiration
of the term of office for which the officer was elected, the general rule
is to allow the officer to hold over until his successor is duly qualified.
Mere failure of a corporation to elect officers does not terminate the
terms of existing officers nor dissolve the corporation. The doctrine
Page 118 of 675

above stated finds expression in article 66 of the by-laws of the


respondent which declares in so many words that directors shall hold
office "for the term of one year or until their successors shall have been
elected and taken possession of their offices." xxx.

It results that the practice of the directorate of filling vacancies by


the action of the directors themselves is valid. Nor can any exception
be taken to the personality of the individuals chosen by the directors to
fill vacancies in the body. [Emphasis supplied.]

Africa, in opposing VVCCs contentions, raises the same arguments that he did
before the trial court.

THE COURTS RULING

We are not persuaded by VVCCs arguments and, thus, find its petition
unmeritorious.

To repeat, the issue for the Court to resolve is whether the remaining
directors of a corporations Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation of a hold-over director. The
resolution of this legal issue is significantly hinged on the determination of what
constitutes a directors term of office.

The holdover period is not part of the term


of office of a member of the board of
directors
Page 119 of 675

The word term has acquired a definite meaning in jurisprudence. In several


cases, we have defined term as the time during which the officer may claim to
hold the office as of right, and fixes the interval after which the several incumbents
shall succeed one another.[7] The term of office is not affected by the
holdover.[8] The term is fixed by statute and it does not change simply because the
office may have become vacant, nor because the incumbent holds over in office
beyond the end of the term due to the fact that a successor has not been elected and
has failed to qualify.

Term is distinguished from tenure in that an officers tenure represents the


term during which the incumbent actually holds office. The tenure may be
shorter (or, in case of holdover, longer) than the term for reasons within or beyond
the power of the incumbent.

Based on the above discussion, when Section 23[9] of the Corporation Code
declares that the board of directorsshall hold office for one (1) year until their
successors are elected and qualified, we construe the provision to mean that the term
of the members of the board of directors shall be only for one year; their term
expires one year after election to the office. The holdover period that time from the
lapse of one year from a members election to the Board and until his successors
election and qualification is not part of the directors original term of office, nor is it
a new term; the holdover period, however, constitutes part of his tenure. Corollary,
when an incumbent member of the board of directors continues to serve in a holdover
capacity, it implies that the office has a fixed term, which has expired, and the
incumbent is holding the succeeding term.[10]

After the lapse of one year from his election as member of the VVCC Board in 1996,
Makalintals term of office is deemed to have already expired. That he continued to
serve in the VVCC Board in a holdover capacity cannot be considered as extending
his term. To be precise, Makalintals term of office began in 1996 and expired in
1997, but, by virtue of the holdover doctrine in Section 23 of the Corporation Code,
he continued to hold office until his resignation on November 10, 1998. This
holdover period, however, is not to be considered as part of his term, which, as
declared, had already expired.
Page 120 of 675

With the expiration of Makalintals term of office, a vacancy resulted which,


by the terms of Section 29[11] of the Corporation Code, must be filled by the
stockholders of VVCC in a regular or special meeting called for the purpose. To
assume as VVCC does that the vacancy is caused by Makalintals resignation in 1998,
not by the expiration of his term in 1997, is both illogical and unreasonable. His
resignation as a holdover director did not change the nature of the vacancy; the
vacancy due to the expiration of Makalintals term had been created long before his
resignation.

The powers of the corporations board of


directors emanate from its stockholders

VVCCs construction of Section 29 of the Corporation Code on the authority to fill


up vacancies in the board of directors, in relation to Section 23 thereof, effectively
weakens the stockholders power to participate in the corporate governance by
electing their representatives to the board of directors. The board of directors is the
directing and controlling body of the corporation. It is a creation of the stockholders
and derives its power to control and direct the affairs of the corporation from them.
The board of directors, in drawing to themselves the powers of the corporation,
occupies a position of trusteeship in relation to the stockholders, in the sense that the
board should exercise not only care and diligence, but utmost good faith in the
management of corporate affairs.[12]

The underlying policy of the Corporation Code is that the business and affairs of a
corporation must be governed by a board of directors whose members have stood
for election, and who have actually been elected by the stockholders, on an annual
basis. Only in that way can the directors' continued accountability to shareholders,
and the legitimacy of their decisions that bind the corporation's stockholders, be
assured. The shareholder vote is critical to the theory that legitimizes the exercise of
power by the directors or officers over properties that they do not own.[13]

This theory of delegated power of the board of directors similarly explains why,
under Section 29 of the Corporation Code, in cases where the vacancy in the
corporations board of directors is caused not by the expiration of a members term,
Page 121 of 675

the successor so elected to fill in a vacancy shall be elected only for the unexpired
term of the his predecessor in office. The law has authorized the remaining members
of the board to fill in a vacancy only in specified instances, so as not to retard or
impair the corporations operations; yet, in recognition of the stockholders right to
elect the members of the board, it limited the period during which the successor shall
serve only to the unexpired term of his predecessor in office.
While the Court in El Hogar approved of the practice of the directors to fill
vacancies in the directorate, we point out that this ruling was made before the present
Corporation Code was enacted[14] and before its Section 29 limited the instances
when the remaining directors can fill in vacancies in the board, i.e., when the
remaining directors still constitute a quorum and when the vacancy is caused for
reasons other than by removal by the stockholders or by expiration of the term.

It also bears noting that the vacancy referred to in Section 29 contemplates


a vacancy occurring within the directors term of office. When a vacancy is created
by the expiration of a term, logically, there is no more unexpired term to speak
of. Hence, Section 29 declares that it shall be the corporations stockholders who
shall possess the authority to fill in a vacancy caused by the expiration of a members
term.

As correctly pointed out by the RTC, when remaining members of the VVCC
Board elected Ramirez to replace Makalintal, there was no more unexpired term to
speak of, as Makalintals one-year term had already expired. Pursuant to law, the
authority to fill in the vacancy caused by Makalintals leaving lies with the VVCCs
stockholders, not the remaining members of its board of directors.

WHEREFORE, we DENY the petitioners petition for review on certiorari,


and AFFIRM the partial decision of the Regional Trial Court, Branch 152, Manila,
promulgated on January 23, 2002, in Civil Case No. 68726. Costs against the
petitioners.

SO ORDERED.
Page 122 of 675

G.R. No. 166282 February 13, 2013

HEIRS OF FE TAN UY (Represented by her heir, Mauling Uy


Lim), Petitioners,
vs.
INTERNATIONAL EXCHANGE BANK, Respondent.

x-----------------------x

G.R. No. 166283

GOLDKEYDEVELOPMENT CORPORATION, Petitioner,


vs.
INTERNATIONAL EXCHANGE BANK, Respondent.

DECISION

MENDOZA, J.:

Before the Court are two consolidated petitions for review on certiorari under Rule
45 of the 1997 Revised Rules of Civil Procedure, assailing the August 16, 2004
Decision1 and the December 2, 2004 Resolution2 of the Court of Appeals (CA) in
CA-G.R. CV No. 69817 entitled "International Exchange Bank v. Hammer
Garments Corp., et al."

The Facts

On several occasions, from June 23, 1997 to September 3, 1997, respondent


International Exchange Bank (iBank), granted loans to Hammer Garments
Corporation (Hammer), covered by promissory notes and deeds of assignment, in
the following amounts:3
Page 123 of 675

Date of Promissory Note Amount

June 23, 1997 P 5,599,471.33

July 24, 1997 2,700,000.00

July 25, 1997 2,300,000.00

August 1, 1997 2,938,505.04

August 1, 1997 3,361,494.96

August 14, 1997 980,000.00

August 21, 1997 2,527,200.00

August 21, 1997 3,146,715.00

September 3, 1997 1,385,511.75

Total P24,938,898.08

These were made pursuant to the Letter-Agreement,4 dated March 23, 1996, between
iBank and Hammer, represented by its President and General Manager, Manuel
Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P 25 Million-
Peso Omnibus Line.5 The loans were secured by a P 9 Million-Peso Real Estate
Mortgage6 executed on July 1, 1997 by Goldkey Development Corporation
(Goldkey) over several of its properties and a P 25 Million-Peso Surety
Agreement7 signed by Chua and his wife, Fe Tan Uy (Uy), on April 15, 1996.

As of October 28, 1997, Hammer had an outstanding obligation of P25,420,177.62


to iBank.8 Hammer defaulted in the payment of its loans, prompting iBank to
foreclose on Goldkeys third-party Real Estate Mortgage. The mortgaged properties
were sold for P 12 million during the foreclosure sale, leaving an unpaid balance of
P 13,420,177.62.9 For failure of Hammer to pay the deficiency, iBank filed a
Complaint10 for sum of money on December 16, 1997 against Hammer, Chua, Uy,
and Goldkey before the Regional Trial Court, Makati City (RTC).11

Despite service of summons, Chua and Hammer did not file their respective answers
and were declared in default. In her separate answer, Uy claimed that she was not
Page 124 of 675

liable to iBank because she never executed a surety agreement in favor of iBank.
Goldkey, on the other hand, also denies liability, averring that it acted only as a third-
party mortgagor and that it was a corporation separate and distinct from Hammer. 12

Meanwhile, iBank applied for the issuance of a writ of preliminary attachment which
was granted by the RTC in its December 17, 1997 Order.13 The Notice of Levy on
Attachment of Real Properties, dated July 15, 1998, covering the properties under
the name of Goldkey, was sent by the sheriff to the Registry of Deeds of Quezon
City.14

The RTC, in its Decision,15 dated December 27, 2000, ruled in favor of iBank. While
it made the pronouncement that the signature of Uy on the Surety Agreement was a
forgery, it nevertheless held her liable for the outstanding obligation of Hammer
because she was an officer and stockholder of the said corporation. The RTC agreed
with Goldkey that as a third-party mortgagor, its liability was limited to the
properties mortgaged. It came to the conclusion, however, that Goldkey and
Hammer were one and the same entity for the following reasons: (1) both were
family corporations of Chua and Uy, with Chua as the President and Chief Operating
Officer; (2) both corporations shared the same office and transacted business from
the same place, (3) the assets of Hammer and Goldkey were co-mingled; and (4)
when Chua absconded, both Hammer and Goldkey ceased to operate. As such, the
piercing of the veil of corporate fiction was warranted. Uy, as an officer and
stockholder of Hammer and Goldkey, was found liable to iBank together with Chua,
Hammer and Goldkey for the deficiency of P13,420,177.62.

Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA.
On August 16, 2004, it promulgated its decision affirming the findings of the RTC.
The CA found that iBank was not negligent in evaluating the financial stability of
Hammer. According to the appellate court, iBank was induced to grant the loan
because petitioners, with intent to defraud the bank, submitted a falsified Financial
Report for 1996 which incorrectly declared the assets and cashflow of
Hammer.16 Because petitioners acted maliciously and in bad faith and used the
corporate fiction to defraud iBank, they should be treated as one and the same as
Hammer.17

Hence, these petitions filed separately by the heirs of Uy and Goldkey. On February
9, 2005, this Court ordered the consolidation of the two cases.18

The Issues
Page 125 of 675

Petitioners raise the following issues:

Whether or not a trial court, under the facts of this case, can go out of the issues
raised by the pleadings;19

Whether or not there is guilt by association in those cases where the veil of
corporate fiction may be pierced;20 and

Whether or not the "alter ego" theory in disregarding the corporate personality
of a corporation is applicable to Goldkey.21

Simplifying the issues in this case, the Court must resolve the following: (1) whether
Uy can be held liable to iBank for the loan obligation of Hammer as an officer and
stockholder of the said corporation; and (2) whether Goldkey can be held liable for
the obligation of Hammer for being a mere alter ego of the latter.

The Courts Ruling

The petitions are partly meritorious.

Uy is not liable; The piercing of the


veil of corporate fiction is not justified

The heirs of Uy argue that the latter could not be held liable for being merely an
officer of Hammer and Goldkey because it was not shown that she had committed
any actionable wrong22 or that she had participated in the transaction between
Hammer and iBank. They further claim that she had cut all ties with Hammer and
her husband long before the execution of the loan.23

The Court finds in favor of Uy.

Basic is the rule in corporation law that a corporation is a juridical entity which is
vested with a legal personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. Following this principle,
obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by the
corporation.24 Nevertheless, this legal fiction may be disregarded if it is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate
Page 126 of 675

issues.25 This is consistent with the provisions of the Corporation Code of the
Philippines, which states:

Sec. 31. Liability of directors, trustees or officers. Directors or trustees who


wilfully and knowingly vote for or assent to patently unlawful acts of the corporation
or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and
other persons.

Solidary liability will then attach to the directors, officers or employees of the
corporation in certain circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a


corporation: (a) vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate affairs;
and (c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons;

2. When a director or officer has consented to the issuance of watered stocks


or who, having knowledge thereof, did not forthwith file with the corporate
secretary his written objection thereto;

3. When a director, trustee or officer has contractually agreed or stipulated to


hold himself personally and solidarily liable with the corporation; or

4. When a director, trustee or officer is made, by specific provision of law,


personally liable for his corporate action.26

Before a director or officer of a corporation can be held personally liable for


corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.27

While it is true that the determination of the existence of any of the circumstances
that would warrant the piercing of the veil of corporate fiction is a question of fact
which cannot be the subject of a petition for review on certiorari under Rule 45, this
Page 127 of 675

Court can take cognizance of factual issues if the findings of the lower court are not
supported by the evidence on record or are based on a misapprehension of facts.28

In this case, petitioners are correct to argue that it was not alleged, much less proven,
that Uy committed an act as an officer of Hammer that would permit the piercing of
the corporate veil. A reading of the complaint reveals that with regard to Uy, iBank
did not demand that she be held liable for the obligations of Hammer because she
was a corporate officer who committed bad faith or gross negligence in the
performance of her duties such that the lifting of the corporate mask would be
merited. What the complaint simply stated is that she, together with her errant
husband Chua, acted as surety of Hammer, as evidenced by her signature on the
Surety Agreement which was later found by the RTC to have been forged.29

Considering that the only basis for holding Uy liable for the payment of the loan was
proven to be a falsified document, there was no sufficient justification for the RTC
to have ruled that Uy should be held jointly and severally liable to iBank for the
unpaid loan of Hammer. Neither did the CA explain its affirmation of the RTCs
ruling against Uy. The Court cannot give credence to the simplistic declaration of
the RTC that liability would attach directly to Uy for the sole reason that she was an
officer and stockholder of Hammer.

At most, Uy could have been charged with negligence in the performance of her
duties as treasurer of Hammer by allowing the company to contract a loan despite
its precarious financial position. Furthermore, if it was true, as petitioners claim, that
she no longer performed the functions of a treasurer, then she should have formally
resigned as treasurer to isolate herself from any liability that could result from her
being an officer of the corporation. Nonetheless, these shortcomings of Uy are not
sufficient to justify the piercing of the corporate veil which requires that the
negligence of the officer must be so gross that it could amount to bad faith and must
be established by clear and convincing evidence. Gross negligence is one that is
characterized by the lack of the slightest care, acting or failing to act in a situation
where there is a duty to act, wilfully and intentionally with a conscious indifference
to the consequences insofar as other persons may be affected.30

It behooves this Court to emphasize that the piercing of the veil of corporate fiction
is frowned upon and can only be done if it has been clearly established that the
separate and distinct personality of the corporation is used to justify a wrong, protect
fraud, or perpetrate a deception.31 As aptly explained in Philippine National Bank v.
Andrada Electric & Engineering Company:32
Page 128 of 675

Hence, any application of the doctrine of piercing the corporate veil should be done
with caution. A court should be mindful of the milieu where it is to be applied. It
must be certain that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of its rights. The
wrongdoing must be clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may result from an erroneous
application.33

Indeed, there is no showing that Uy committed gross negligence. And in the absence
of any of the aforementioned requisites for making a corporate officer, director or
stockholder personally liable for the obligations of a corporation, Uy, as a treasurer
and stockholder of Hammer, cannot be made to answer for the unpaid debts of the
corporation.

Goldkey is a mere alter ego of Hammer

Goldkey contends that it cannot be held responsible for the obligations of its
stockholder, Chua.34 Moreover, it theorizes that iBank is estopped from expanding
Goldkeys liability beyond the real estate mortgage.35 It adds that it did not authorize
the execution of the said mortgage.36 Finally, it passes the blame on to iBank for
failing to exercise the requisite due diligence in properly evaluating Hammers
creditworthiness before it was extended an omnibus line.37

The Court disagrees with Goldkey.

There is no reason to discount the findings of the CA that iBank duly inspected the
viability of Hammer and satisfied itself that the latter was a good credit risk based
on the Financial Statement submitted. In addition, iBank required that the loan be
secured by Goldkeys Real Estate Mortgage and the Surety Agreement with Chua
and Uy. The records support the factual conclusions made by the RTC and the CA.

To the Courts mind, Goldkeys argument, that iBank is barred from pursuing
Goldkey for the satisfaction of the unpaid obligation of Hammer because it had
already limited its liability to the real estate mortgage, is completely absurd. Goldkey
needs to be reminded that it is being sued not as a consequence of the real estate
mortgage, but rather, because it acted as an alter ego of Hammer. Accordingly, they
must be treated as one and the same entity, making Goldkey accountable for the
debts of Hammer.
Page 129 of 675

In fact, it is Goldkey who is now precluded from denying the validity of the Real
Estate Mortgage. In its Answer with Affirmative Defenses and Compulsory
Counterclaim, dated January 5, 1998, it already admitted that it acted as a third-party
mortgagor to secure the obligation of Hammer to iBank.38 Thus, it cannot, at this late
stage, question the due execution of the third-party mortgage.

Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to


enforce an obligation of Chua. The records clearly show that it was Hammer, of
which Chua was the president and a stockholder, which contracted a loan from
iBank. What iBank sought was redress from Goldkey by demanding that the veil of
corporate fiction be lifted so that it could not raise the defense of having a separate
juridical personality to evade liability for the obligations of Hammer.

Under a variation of the doctrine of piercing the veil of corporate fiction, when two
business enterprises are owned, conducted and controlled by the same parties, both
law and equity will, when necessary to protect the rights of third parties, disregard
the legal fiction that two corporations are distinct entities and treat them as identical
or one and the same.39

While the conditions for the disregard of the juridical entity may vary, the following
are some probative factors of identity that will justify the application of the doctrine
of piercing the corporate veil, as laid down in Concept Builders, Inc. v NLRC:40

(1) Stock ownership by one or common ownership of both corporations;

(2) Identity of directors and officers;

(3) The manner of keeping corporate books and records, and

(4) Methods of conducting the business.41

These factors are unquestionably present in the case of Goldkey and Hammer, as
observed by the RTC, as follows:

1. Both corporations are family corporations of defendants Manuel Chua and his
wife Fe Tan Uy. The other incorporators and shareholders of the two corporations
are the brother and sister of Manuel Chua (Benito Ng Po Hing and Nenita Chua Tan)
and the sister of Fe Tan Uy, Milagros Revilla. The other incorporator/share holder
is Manling Uy, the daughter of Manuel Chua Uy Po Tiong and Fe Tan Uy.
Page 130 of 675

The stockholders of Hammer Garments as of March 23, 1987, aside from spouses
Manuel and Fe Tan Uy are: Benito Chua, brother Manuel Chua, Nenita Chua Tan,
sister of Manuel Chua and Tessie See Chua Tan. On March 8, 1988, the shares of
Tessie See Chua Uy were assigned to Milagros T. Revilla, thereby consolidating the
shares in the family of Manuel Chua and Fe Tan Uy.

2. Hammer Garments and Goldkey share the same office and practically transact
their business from the same place.

3. Defendant Manuel Chua is the President and Chief Operating Officer of both
corporations. All business transactions of Goldkey and Hammer are done at the
instance of defendant Manuel Chua who is authorized to do so by the corporations.

The promissory notes subject of this complaint are signed by him as Hammers
President and General Manager. The third-party real estate mortgage of defendant
Goldkey is signed by him for Goldkey to secure the loan obligation of Hammer
Garments with plaintiff "iBank". The other third-party real estate mortgages which
Goldkey executed in favor of the other creditor banks of Hammer are also assigned
by Manuel Chua.

4. The assets of Goldkey and Hammer are co-mingled. The real properties of
Goldkey are mortgaged to secure Hammers obligation with creditor banks.

The proceed of at least two loans which Hammer obtained from plaintiff "iBank",
purportedly to finance its export to Wal-Mart are instead used to finance the purchase
of a managers check payable to Goldkey. The defendants claim that Goldkey is a
creditor of Hammer to justify its receipt of the Managers check is not substantiated
by evidence. Despite subpoenas issued by this Court, Goldkey thru its treasurer,
defendant Fe Tan Uy and or its corporate secretary Manling Uy failed to produce the
Financial Statement of Goldkey.

5. When defendant Manuel Chua "disappeared", the defendant Goldkey ceased to


operate despite the claim that the other "officers" and stockholders like Benito Chua,
Nenita Chua Tan, Fe Tan Uy, Manling Uy and Milagros T. Revilla are still around
and may be able to continue the business of Goldkey, if it were different or distinct
from Hammer which suffered financial set back.42

Based on the foregoing findings of the RTC, it was apparent that Goldkey was
merely an adjunct of Hammer and, as such, the legal fiction that it has a separate
Page 131 of 675

personality from that of Hammer should be brushed aside as they are, undeniably,
one and the same.

WHEREFORE, the petition are PARTLY GRANTED. The August 16, 2004
Decision and the December 2, 2004 Resolution of the Court of Appeals in CA-G.R.
CV No. 69817, are hereby MODIFIED. Fe Tan Uy is released from any liability
arising from the debts incurred by Hammer from iBank. Hammer Garments
Corporation, Manuel Chua Uy Po Tiong and Goldkey Development Corporation are
jointly and severally liable to pay International Exchange Bank the sum
of P13,420,177.62 representing the unpaid loan obligation of Hammer as of
December 12, 1997 plus interest. No costs.

SO ORDERED.

JOSE CATRAL MENDOZA


Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.


Associate Justice
Chairperson

ROBERTO A. ABAD
Ass
Page 132 of 675

ALERT SECURITY AND G.R. No. 182397


INVESTIGATION AGENCY, INC.
AND/OR MANUEL D. DASIG, Present:
Petitioners,
CORONA, C.J.,
Chairperson,
- versus - LEONARDO-DE CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.
SAIDALI PASAWILAN,
WILFREDO VERCELES AND Promulgated:
MELCHOR BULUSAN,
Respondents. September 14, 2011
x-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision [1] dated February 1,
2008 of the Court of Appeals (CA) in CA-G.R. SP No. 99861. The appellate court
reversed and set aside the January 31, 2007 Decision [2] and March 15, 2007
Resolution[3] of the National Labor Relations Commission (NLRC) and reinstated
the Labor Arbiters Decision[4] finding petitioners guilty of illegal dismissal.

The facts follow.

Respondents Saidali Pasawilan, Wilfredo Verceles and Melchor Bulusan were


all employed by petitioner Alert Security and Investigation Agency, Inc. (Alert
Security) as security guards beginning March 31, 1996, January 14, 1997,
and January 24, 1997, respectively. They were paid 165.00 pesos a day as regular
employees, and assigned at the Department of Science and Technology (DOST)
pursuant to a security service contract between the DOST and Alert Security.

Respondents aver that because they were underpaid, they filed a complaint for
money claims against Alert Security and its president and general manager,
Page 133 of 675

petitioner Manuel D. Dasig, before Labor Arbiter Ariel C. Santos. As a result of their
complaint, they were relieved from their posts in the DOST and were not given new
assignments despite the lapse of six months. On January 26, 1999, they filed a joint
complaint for illegal dismissal against petitioners.

Petitioners, on the other hand, deny that they dismissed the respondents. They
claimed that from the DOST, respondents were merely detailed at the Metro Rail
Transit, Inc. at the Light Rail Transit Authority (LRTA) Compound in Aurora Blvd.
because the wages therein were already adjusted to the latest minimum
wage. Petitioners presented Duty Detail Orders[5] that Alert Security issued to show
that respondents were in fact assigned to LRTA. Respondents, however, failed to
report at the LRTA and instead kept loitering at the DOST and tried to convince
other security guards to file complaints against Alert Security. Thus, on August 3,
1998, Alert Security filed a termination report[6] with the Department of Labor and
Employment relative to the termination of the respondents.

Upon motion of the respondents, the joint complaint for illegal dismissal was
ordered consolidated with respondents earlier complaint for money claims. The
records of the illegal dismissal case were sent to Labor Arbiter Ariel C. Santos, but
later returned to the Office of the Labor Arbiter hearing the illegal dismissal
complaint because a Decision[7] has already been rendered in the complaint for
money claims on July 14, 1999. In that decision, the complaint for money claims
was dismissed for lack of merit but petitioners were ordered to pay respondents their
latest salary differentials.

On July 28, 2000, Labor Arbiter Melquiades Sol D. Del Rosario rendered a
Decision[8] on the complaint for illegal dismissal. The Labor Arbiter ruled:

CONFORMABLY WITH THE FOREGOING, judgment is


hereby rendered finding complainants to have been illegally
dismissed. Consequently, each complainant should be paid in solidum
by the respondents the individual awards computed in the body of the
decision, which is hereto adopted as part of this disposition.

SO ORDERED.[9]
Page 134 of 675

Aggrieved, petitioners appealed the decision to the NLRC claiming that the
Labor Arbiter erred in deciding a re-filed case when it was filed in violation of the
prohibitions against litis pendencia and forum shopping. Further, petitioners argued
that complainants were not illegally dismissed but were only transferred. They
claimed that it was the respondents who refused to report for work in their new
assignment.

On January 31, 2007, the NLRC rendered a Decision[10] ruling that Labor
Arbiter Del Rosario did not err in taking cognizance of respondents complaint for
illegal dismissal because the July 14, 1999 Decision of Labor Arbiter Santos on the
complaint for money claims did not at all pass upon the issue of illegal
dismissal. The NLRC, however, dismissed the complaint for illegal dismissal after
ruling that the fact of dismissal or termination of employment was not sufficiently
established. According to the NLRC, [the] sweeping generalization that the
complainants were constructively dismissed is not sufficient to establish the
existence of illegal dismissal.[11] The dispositive portion of the NLRC decision
reads:

WHEREFORE, premises considered, the respondents appeal is


hereby given due course and the decision dated July 28, 2000 is hereby
REVERSED and SET-ASIDE and a new one entered DISMISSING the
complaint for illegal dismissal for lack of merit.

SO ORDERED.[12]

Unfazed, respondents filed a petition for certiorari with the CA questioning


the NLRC decision and alleging grave abuse of discretion.

On February 1, 2008, the CA rendered the assailed Decision[13] reversing and


setting aside the NLRC decision and reinstating the July 28, 2000 Decision of Labor
Arbiter Del Rosario. The CA ruled that Alert Security, as an employer, failed to
discharge its burden to show that the employees separation from employment was
not motivated by discrimination, made in bad faith, or effected as a form of
punishment or demotion without sufficient cause. The CA also found that
respondents were never informed of the Duty Detail Orders transferring them to a
new post, thereby making the alleged transfer ineffective. The dispositive portion of
the CA decision states:
Page 135 of 675

WHEREFORE, premises considered, the January 31,


2007 decision of the NLRC is hereby REVERSED and SET
ASIDE and the July 28, 2000 decision of the Labor Arbiter is
hereby REVIVED.

SO ORDERED.[14]

Petitioners filed a motion for reconsideration, but the motion was denied in a
Resolution[15] dated March 31, 2008.

Petitioners are now before this Court to seek relief by way of a petition for
review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended.

Petitioners argue that the CA erred when it held that the NLRC committed
grave abuse of discretion. According to petitioners, the NLRC was correct when it
ruled that there was no sufficient basis to rule that respondents were terminated from
their employment while there was proof that they were merely transferred from
DOST to LRTA as shown in the Duty Detail Orders. Verily, petitioners claim that
there was no termination at all; instead, respondents abandoned their employment
by refusing to report for duty at the LRTA Compound.

Further, petitioners argue that the CA erred when it reinstated the July 28,
2000 Decision of Labor Arbiter Del Rosario in its entirety. The dispositive portion
of said decision ruled that respondents should be paid their monetary awards
in solidum by Alert Security and Manuel D. Dasig, its President and General
Manager. They argue that Alert Security is a duly organized domestic corporation
which has a legal personality separate and distinct from its members or
owners. Hence, liability for whatever compensation or money claims owed to
employees must be borne solely by Alert Security and not by any of its individual
stockholders or officers.

On the other hand, respondents claim that the NLRC committed a serious error
in ruling that they failed to provide factual substantiation of their claim of
constructive dismissal. Respondents aver that their Complaint Form[16] sufficiently
constitutes the basis of their claim of illegal dismissal. Also, respondents aver that
Alert Security itself admitted that respondents were relieved from their posts as
security guards in DOST, albeit raising the defense that it was a mere transfer as
Page 136 of 675

shown by Duty Detail Orders, which, however, were never received by respondents,
as observed by the Labor Arbiter.

Essentially, the issue for resolution is whether respondents were illegally


dismissed.

We rule in the affirmative.

As a rule, employment cannot be terminated by an employer without any just


or authorized cause. No less than the 1987 Constitution in Section 3, Article 13
guarantees security of tenure for workers and because of this, an employee may only
be terminated for just[17] or authorized[18] causes that

must comply with the due process requirements mandated[19] by law. Hence,
employers are barred from arbitrarily removing their workers whenever and however
they want.The law sets the valid grounds for termination as well as the proper
procedure to take when terminating the services of an employee.

In De Guzman, Jr. v. Commission on Elections,[20] the Court, speaking of the


Constitutional guarantee of security of tenure to all workers, ruled:

x x x It only means that an employee cannot be dismissed (or


transferred) from the service for causes other than those provided by
law and after due process is accorded the employee. What it seeks to
prevent is capricious exercise of the power to dismiss. x x x
(Emphasis supplied.)

Although we recognize the right of employers to shape their own work force,
this management prerogative must not curtail the basic right of employees to security
of tenure. There must be a valid and lawful reason for terminating the employment
of a worker. Otherwise, it is illegal and would be dealt with by the courts
accordingly.

As stated in Bascon v. Court of Appeals:[21]

x x x The employers power to dismiss must be tempered with the


employees right to security of tenure. Time and again we have said that
Page 137 of 675

the preservation of the lifeblood of the toiling laborer comes before


concern for business profits. Employers must be reminded to exercise
the power to dismiss with great caution, for the State will not hesitate
to come to the succor of workers wrongly dismissed by capricious
employers.

In the case at bar, respondents were relieved from their posts because they
filed with the Labor Arbiter a complaint against their employer for money claims
due to underpayment of wages. This reason is unacceptable and illegal. Nowhere in
the law providing for the just and authorized causes of termination of employment
is there any direct or indirect reference to filing a legitimate complaint for money
claims against the employer as a valid ground for termination.

The Labor Code, as amended, enumerates several just and authorized causes
for a valid termination of employment. An employee asserting his right and asking
for minimum wage is not among those causes. Dismissing an employee on this
ground amounts to retaliation by management for an employees legitimate grievance
without due process. Such stroke of retribution has no place in Philippine Labor
Laws.

Petitioners aver that respondents were merely transferred to a new post


wherein the wages are adjusted to the current minimum wage standards. They
maintain that the respondents voluntarily abandoned their jobs when they failed to
report for duty in the new location.

Assuming this is true, we still cannot hold that the respondents abandoned
their posts. For abandonment of work to fall under Article 282 (b) of the Labor Code,
as amended, as gross and habitual neglect of duties there must be the concurrence of
two elements. First, there should be a failure of the employee to report for work
without a valid or justifiable reason, and second, there should be a showing that the
employee intended to sever the employer-employee relationship, the second element
being the more determinative factor as manifested by overt acts.[22]

As regards the second element of intent to sever the employer-employee


relationship, the CA correctly ruled that:
Page 138 of 675

x x x the fact that petitioners filed a complaint for illegal dismissal is


indicative of their intention to remain employed with private
respondent considering that one of their prayers in the complaint is for
re-instatement. As declared by the Supreme Court, a complaint for
illegal dismissal is inconsistent with the charge of abandonment,
because when an employee takes steps to protect himself against a
dismissal, this cannot, by logic, be said to be abandonment by him of
his right to be able to work.[23]

Further, according to Alert Security itself, respondents continued to report for


work and loiter in the DOST after the alleged transfer order was issued. Such
circumstance makes it unlikely that respondents have clear intention of leaving their
respective jobs. In any case, there is no dispute that in cases of abandonment of work,
notice shall be served at the workers last known address.[24] This petitioners failed to
do.

On the element of the failure of the employee to report for work, we also
cannot accept the allegations of petitioners that respondents unjustifiably refused to
report for duty in their new posts. A careful review of the records reveals that there
is no showing that respondents were notified of their new assignments. Granting that
the Duty Detail Orders were indeed issued, they served no purpose unless the
intended recipients of the orders are informed of such.

The employer cannot simply conclude that an employee is ipso facto notified
of a transfer when there is no evidence to indicate that the employee had knowledge
of the transfer order. Hence, the failure of an employee to report for work at the new
location cannot be taken against him as an element of abandonment.

We acknowledge and recognize the right of an employer to transfer employees


in the interest of the service. This exercise is a management prerogative which is a
lawful right of an employer. However, like all rights, there are limitations to the right
to transfer employees. As ruled in the case of Blue Dairy Corporation v. NLRC:[25]

x x x The managerial prerogative to transfer personnel must be


exercised without grave abuse of discretion, bearing in mind the basic
elements of justice and fair play. Having the right should not be
confused with the manner in which that right is exercised. Thus, it
Page 139 of 675

cannot be used as a subterfuge by the employer to rid himself of an


undesirable worker. In particular, the employer must be able to show
that the transfer is not unreasonable, inconvenient or prejudicial to the
employee; nor does it involve a demotion in rank or a diminution of his
salaries, privileges and other benefits. x x x

In addition to these tests for a valid transfer, there should be proper and
effective notice to the employee concerned. It is the employers burden to show that
the employee was duly notified of the transfer. Verily, an employer cannot
reasonably expect an employee to report for work in a new location without first
informing said employee of the transfer. Petitioners insistence on the sufficiency of
mere issuance of the transfer order is indicative of bad faith on their part.

Besides, according to petitioners, the reason for the transfer to LRTA of the
respondents was that the wages in LRTA were already adjusted to comply with the
minimum wage rates. Now it is hard to believe that after being ordered to transfer to
LRTA where the wages are better, the respondents would still refuse the transfer.
That would mean that the respondents refused better wages and instead chose to
remain in DOST, underpaid, and go through the lengthy process of claiming and
asking for minimum wage. This proposed scenario of petitioners simply does not
jibe with human logic and experience.

On the question of the propriety of holding petitioner Manuel D. Dasig,


president and general manager of Alert Security, solidarily liable with Alert Security
for the payment of the money awards in favor of respondents, we find petitioners
arguments meritorious.

Basic is the rule that a corporation has a separate and distinct personality apart
from its directors, officers, or owners. In exceptional cases, courts find it proper to
breach this corporate personality in order to make directors, officers, or owners
solidarily liable for the companies acts. Section 31, Paragraph 1 of the Corporation
Code[26] provides:

Sec. 31. Liability of directors, trustees or officers. - Directors or


trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such
Page 140 of 675

directors, or trustees shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or
members and other persons.

xxxx

Jurisprudence has been consistent in defining the instances when the separate
and distinct personality of a corporation may be disregarded in order to hold the
directors, officers, or owners of the corporation liable for corporate
debts. In McLeod v. National Labor Relations Commission,[27] the Court ruled:

Thus, the rule is still that the doctrine of piercing the corporate veil
applies only when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime. In the
absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made
personally liable for corporate liabilities. x x x

Further, in Carag v. National Labor Relations Commission,[28] the Court


clarified the McLeod doctrine as regards labor laws, to wit:

We have already ruled in McLeod v. NLRC[29] and Spouses Santos v.


NLRC[30] that Article 212(e)[31] of the Labor Code, by itself, does not
make a corporate officer personally liable for the debts of the
corporation. The governing law on personal liability of directors for
debts of the corporation is still Section 31 of the Corporation Code. x x
x

In the present case, there is no evidence to indicate that Manuel D. Dasig, as


president and general manager of Alert Security, is using the veil of corporate fiction
to defeat public convenience, justify wrong, protect fraud, or defend crime. Further,
there is no showing that Alert Security has folded up its business or is reneging in
its obligations. In the final analysis, it is Alert Security that respondents are after and
it is also Alert Security who should take responsibility for their illegal dismissal.

WHEREFORE, the petition for review on certiorari is DENIED. The


Decision of the Court of Appeals in CA-G.R. SP No. 99861 and the Decision
dated July 28, 2000 of the Labor Arbiter are MODIFIED. Petitioner Manuel D.
Page 141 of 675

Dasig is held not solidarily liable with petitioner Alert Security and Investigation,
Inc. for the payment of the monetary awards in favor of respondents. Said Decision
of the Court of Appeals in all other aspects is AFFIRMED.

With costs against the petitioners.

SO ORDERED.

UNITED COCONUT G.R. No. 179015


PLANTERS BANK,
Petitioner, Present:
PERALTA, J.,
Acting Chairperson,*
- versus - ABAD,
VILLARAMA, JR.,**
MENDOZA, and
PERLAS-BERNABE, JJ.
PLANTERS PRODUCTS, INC.,
JANET LAYSON and Promulgated:
GREGORY GREY,
Respondents. June 13, 2012

x --------------------------------------------------------------------------------------- x

DECISION
Page 142 of 675

ABAD, J.:

This case is about the liability of the bank for a transaction entered into by its branch
manager in connivance with a client.

The Facts and the Case

Respondent Planters Products, Incorporated (PPI), a fertilizer manufacturer, entered


into an arrangement with respondent Janet Layson for the delivery of fertilizers to
her, payable from the proceeds of the loan that petitioner United Coconut Planters
Bank (UCPB) extended to her. On February 11, 1980 Layson executed a document
called pagares, written on the dorsal side of a UCPB promissory
note.[1] The pagares stated that Layson had an approved loan with UCPB-Iloilo
Branch for P200,000.00. The second portion of the pagares, signed by that branchs
manager respondent Gregory Grey, stated that the assignment has been duly
accepted and payment duly guaranteed within 60 days from PPIs
Invoice. Specifically, the pagares said:

I/We irrevocably assign the proceeds of this Promissory Note to


Planters Products, Inc., for the account of Janet Layson as payment for
my fertilizer/agchemicals withdrawals covered by Invoice Nos.
_______ for application to my fertilizer line.

I/We hereby attest and affirm that I/We have an approved loan with
United Coconut Planters Bank, Iloilo Branch, in the amount of Pesos
Page 143 of 675

TWO HUNDRED THOUSAND (P200,000.00) which is allotted for


fertilizer.

Sgd.
JANET LAYSON
Feb. 11, 1980

Assignment accepted and payment unconditionally guaranteed within


sixty (60) days from Planters Products, Inc. Invoice date up to Pesos:
Two Hundred Thousand (P200,000.00) only.

Sgd.
GREGORY GREY
Manager

Subsequently, Layson executed a third document Letter Guarantee by the Dealer,


stating that she binds herself to pay PPI the face value of the pagares in case UCPB
did not pay the same at maturity. But contrary to her undertakings, on the following
day, February 12, 1980, Layson withdrew with branch manager Greys connivance
the P200,000.00 loan that UCPB granted her.

On the strength of the three documents, PPI delivered quantities of fertilizers to


Layson. Layson and Grey duplicated their transactions with PPI on February 18 and
27, 1980 covering two loans of P100,000.00 each.

On April 28, 1980 PPI presented the documents of the financed transactions to
UCPB for collection. But the bank denied the claim on the ground that it neither
Page 144 of 675

authorized the transactions nor the execution of the documents which were not part
of its usual banking transactions. UCPB claimed that branch manager Grey exceeded
his authority in guaranteeing payment of Laysons purchases on credit. The pagares,
said UCPB, were illegal and void since banking laws prohibit bank officers from
guaranteeing loans of bank clients.

Consequently, in April 1980 PPI sued Layson, UCPB, and Grey for breach of
contract with damages before the Regional Trial Court (RTC) of Makati.[2] Grey
died while the case was on trial. Although the RTC ordered Greys substitution by
any of his heirs, no one came to substitute him. Trial proceeded without prejudice to
the claims against his estate.

On April 28, 1999 the RTC rendered a decision, absolving UCPB from liability for
the value of the fertilizer products that PPI sold to Layson on credit. Since Grey
acted in excess of his authority in guaranteeing the payment of the pagares and in
involving himself in the transaction, UCPB cannot be bound by the same. Further,
the promissory notes, on the dorsal side of which appeared the pagares, were not in
negotiable form. They had neither a fixed date of maturity nor a fixed amount of
obligation. The pagares is also void under the Civil Code because the prestation,
Greys act of guaranteeing the loan, is prohibited under Section 83 of the General
Banking Act.

The court held Layson liable to PPI a) for P399,966.25 with 6% interest from the
time it filed its complaint until fully paid and b) for attorneys fees
of P30,000.00. Since Grey impliedly admitted[3] having no authority on his own to
grant Layson the credit accommodation and UCPBs guarantee to pay for the
Page 145 of 675

fertilizers she bought, the court found him subsidiarily liable for the principal
amount. PPI appealed the decision to the Court of Appeals (CA).

On March 22, 2007 the CA rendered a decision, reversing that of the RTC and
declaring UCPB jointly and severally liable with Layson for the latters obligation to
PPI to the extent of P200,000.00 covering the February 11, 1980 credit
accommodation. The court deleted the award for attorneys fees. As regard to the
second and third pagares, the CA ruled that PPI failed to prove the subsequent
assignments. Essentially, the CA ruled

that Laysons pagares were in the nature of assignment of credit, consisting in the
proceeds of the loan that UCPB granted her. Since UCPB, acting through Grey,
undertook to deliver those proceeds to PPI in payment of the fertilizers she was going
to buy, UCPB is bound by such undertaking.

UCPB brings the present petition for review of the CA decision.

Issues Presented

The case presents the following issues:

1. Whether or not UCPB is bound by Greys undertaking on its behalf to deliver to


PPI the proceeds of the banks loan to Layson in payment of the fertilizers she bought;
and

2. In the negative, whether or not UCPB is entitled to an award of attorneys fees.


Page 146 of 675

The Ruling of the Court

One. The CA held that, in executing the pagares, Layson simply assigned to PPI
the P200,000.00 proceeds of her approved loan with UCPB in payment of the
fertilizers that she wanted to buy from PPI. She wrote the pagares at the back of
the pro forma promissory note that she executed in UCPBs favor. The CA did not
consider the pagares as a guaranty, a contract, or a negotiable promissory note.

The CA also held that Laysons assignment to PPI of the P200,000.00 coming to her
from UCPB, with respect to which UCPB may be regarded as an obligor, is binding
on the bank.[4] A formal notice is not required to bind the bank regarding its
undertaking to make good the assignment. UCPB may be deemed to have acted in
bad faith when it delivered the proceeds of the loan to Layson, despite its undertaking
to turn them over to PPI.

True, a corporation like UCPB is liable to innocent third persons where it


knowingly permits its officer, or any other agent, to perform acts within the scope
of his general or apparent authority, holding him out to the public as possessing
power to do those acts.[5]

But, here, it is plain from the guarantee Grey executed that he was acting for
himself, not in representation of UCPB. Grey wrote that undertaking at the bottom
of the pagares as follows:
Page 147 of 675

Assignment accepted and payment unconditionally guaranteed within


sixty (60) days from Planters Products, Inc. Invoice date up to Pesos:
Two Hundred Thousand (P200,000.00) only.

Sgd.
GREGORY GREY
Manager

UCPB cannot be bound by Greys above undertaking since he appears to have made
it in his personal capacity. He signed it under his own name, not in UCPBs name or
as its branch manager. Indeed, the wordings of the undertaking do not at all make
any allusion to UCPB.

Besides, by its tenor, Greys undertaking was a guarantee. It says,


payment unconditionally guaranteed within sixty (60) days from Planters
Products, Inc. Invoice date up to Pesos: Two Hundred Thousand (P200,000.00)
only. As it happens, bank guarantees are highly regulated transactions under the
law.[6] They are undertakings that are not so casually issued by banks or by their
branch managers at the dorsal side of a clients promissory note as if an
afterthought. A bank guarantee is a contract that binds the bank and so may be
entered into only under authority granted by its board of directors. Such authority
does not appear on any document. Indeed, PPI had no right to expect branch manager
Grey to issue one without such authorization.

Notably, the evidence shows that on February 11, 1980, claiming that UCPB
had already approved her loan of P200,000.00, Layson assigned all the proceeds of
such loan to PPI in payment of fertilizers she wanted to buy from it. For his part,
Page 148 of 675

Grey agreed to the assignment and, apparently without authority from the bank,
undertook to guarantee the payment of the pagares. Notwithstanding this
undertaking, however, Grey released the P200,000.00 proceeds of the loan to
Layson the next day, February 12, 1980. It is evident that Grey connived with
Layson to lure PPI to deliver to her fertilizers worth P200,000.00 on credit.

UCPB also adduced evidence that Grey lent Layson that P200,000.00 without proper
authorization from the bank. The authority the bank gave him for unilaterally
extending unsecured loans has a ceiling of P10,000.00 only. Grey needed under
UCPBs Revised Branch Lending Authority[7] the unanimous approval[8] of the
Branch Credit Committee,[9] of which he was only a member, before he can grant a
higher loan of the kind.

With UCPB absolved of any liability, the Court affirms the ruling of the RTC
of Makati that finds Layson primarily liable to PPI with the latter having the right of
recourse to Grey in the event that it could not recover from her. Importantly, Layson
never denied her business dealings with PPI and her receipt of PPIs fertilizer
products. This admission cements her liability for the fertilizers she got from it.

Two. The CA properly deleted the award of attorneys fees in favor of UCPB. Such
fees may be awarded when one was compelled to litigate and incurred expenses to
protect his interests or when the suit filed was baseless or when the defendant acted
in bad faith in filing or impleading the litigant. Here, however, PPI had good reason
to implead UCPB since, after all, its branch manager played a pivotal role in
facilitating the anomalous transaction. Thus, it cannot be said that PPI acted in bad
faith in impleading the bank.
Page 149 of 675

WHEREFORE, the Court GRANTS the petition, REVERSES the decision


of the Court of Appeals in CA-G.R. CV 67364 dated March 22, 2007,
and REINSTATES in toto the decision of the Regional Trial Court of Makati.

SO ORDERED.

G.R. No. 182378 March 6, 2013

MERCY VDA. DE ROXAS, represented by ARLENE C. ROXAS-CRUZ, in


her capacity as substitute appellant-petitioner, Petitioner,
vs.
OUR LADY'S FOUNDATION, INC., Respondent.

DECISION

SERENO, CJ.:

Before this Court is a Rule 45 Petition, seeking a review of the Court of Appeals
(CA) 25 September 2007 Decision1 and 11 March 2008 Resolution2 in CA-G.R. SP
No. 88622, which nullified the (1) Notices of Garnishment directed against the bank
accounts of petitioner's general manager; and (2) the 2 December 2004 Order 3 in
Civil Case No. 5403 of the Regional Trial Court (RTC) of Sorsogon City, Branch
52. The Order required respondent to reimburse petitioner Pl ,800 per square meter
of the 92-square-meter property it had encroached upon.

The antecedent facts are as follows:

On 1 September 1988, Salve Dealca Latosa filed before the RTC a Complaint for
the recovery of ownership of a portion of her residential land located at Our Ladys
Village, Bibincahan, Sorsogon, Sorsogon, docketed as Civil Case No. 5403.
According to her, Atty. Henry Amado Roxas (Roxas), represented by petitioner
Page 150 of 675

herein, encroached on a quarter of her property by arbitrarily extending his concrete


fence beyond the correct limits.

In his Answer, Roxas imputed the blame to respondent Our Ladys Village
Foundation, Inc., now Our Ladys Foundation, Inc. (OLFI). He then filed a Third-
Party Complaint against respondent and claimed that he only occupied the adjoining
portion in order to get the equivalent area of what he had lost when OLFI trimmed
his property for the subdivision road. The RTC admitted the Third-Party Complaint
and proceeded to trial on the merits.

After considering the evidence of all the parties, the trial court held that Latosa had
established her claim of encroachment by a preponderance of evidence. It found that
Roxas occupied a total of 112 square meters of Latosas lots, and that, in turn, OLFI
trimmed his property by 92 square meters. The dispositive portion of the
Decision4 reads:

WHEREFORE, the Court hereby renders judgment as follows:

On the Complaint:

1. Ordering the defendant to return and surrender the portion of 116 sq. meters
which lawfully belongs to the plaintiff being a portion of Lot 19;

2. Ordering defendant to demolish whatever structure constructed [sic]


thereon and to remove the same at his own expense;

3. Ordering defendant to. reimburse plaintiff the amount of P1,500.00 for the
expenses in the relocation survey;

4. Ordering the dismissal of the counter claim.

On the 3rd Party Complaint:

1. Ordering the 3rd Party Defendant to reimburse 3rd Party Plaintiff the value
of 92 sq. meters which is a portion of Lot 23 of the def-3rd Party Plaintiff plus
legal interest to be reckoned from the time it was paid to the 3rd Party
Defendant;

2. 3rd Party Defendant is ordered to pay the 3rd Party Plaintiff the sum
of P10,000.00 as attorney's fees and P5,000 as litigation expenses;
Page 151 of 675

3. 3rd Party Defendant shall pay the cost of suit.

SO ORDERED.5

Subsequently, Roxas appealed to the CA, which later denied the appeal. Since the
Decision had become final, the RTC issued a Writ of Execution 6 to implement the
ruling ordering OLFI to reimburse Roxas for the value of the 92-square-meter
property plus legal interest to be reckoned from the time the amount was paid to the
third-party defendant. The trial court then approved the Sheriffs Bill,7 which valued
the subject property at P2,500 per square meter or a total of P230,000. Adding the
legal interest of 12% per annum for 10 years, respondents judgment obligations
totaled P506,000.

Opposing the valuation of the subject property, OLFI filed a Motion to Quash the
Sheriffs Bill and a Motion for Inhibition of the RTC judge. It insisted that it should
reimburse Roxas only at the rate of P40 per square meter, the same rate that Roxas
paid when the latter first purchased the property. Nevertheless, before resolving the
Motions filed by OLFI, the trial court approved an Amended Sheriffs Bill, 8 which
reduced the valuation to P1,800 per square meter.

Eventually, the RTC denied both the Motion for Inhibition and the Motion to Quash
the Sheriffs Bill. It cited fairness to justify the computation of respondents
judgment obligation found in the Amended Sheriffs Bill. In its 2 December 2004
Order, the trial court explained:

Although it might be true that the property was originally purchased at P40.00 per
square meter, the value of the Philippine Peso has greatly devaluated since
then P40.00 may be able to purchase a square meter of land twenty (20) or more
years ago but it could only buy two (2) kilos of rice today. It would be most unfair
to the defendants-third party plaintiff if the third party defendant would only be made
to reimburse the purchase price at P40.00 per square meter. Anyway, this Court is
in the best position to determine what amount should be reimbursed since it is the
one who rendered the decision which was affirmed in toto by the Appellate Court
and this Court is of the opinion and so holds that that amount should be P1,800.00
per square meter.9

To collect the aforementioned amount, Notices of Garnishment10 were then issued


by the sheriff to the managers of the Development Bank of the Philippines and the
Page 152 of 675

United Coconut Planters Bank for them to garnish the account of Bishop Robert
Arcilla-Maullon (Arcilla-Maullon), OLFIs general manager.

Refusing to pay P1,800 per square meter to Roxas, OLFI filed a Rule 65 Petition
before the CA.11 Respondent asserted that since the dispositive portion of the
Decision ordered it to reimburse Roxas, it should only be made to return the purchase
price that he had originally paid, which was P40 per square meter for the 92-square-
meter property.

Petitioner argues otherwise. Roxas first clarified that the dispositive portion of the
Decision is silent as to the value of the subject property whether the value is to be
reckoned from the date of purchase or from the date of payment after the finality of
judgment.12 Following this clarification, petitioner pointed out that the valuation of
the subject property was for the trial court to undertake, and that the reimbursement
contemplated referred to the repayment of all the expenses, damages, and losses.
Roxas ultimately argued that the payment for the property encroached upon must
not be absurd and must take into consideration the devaluation of the Philippine
peso.

The arguments of Roxas did not persuade the CA. It construed reimbursement as an
obligation to pay back what was previously paid and thus required OLFI to merely
reimburse him at the rate of P40 per square meter, which was the consideration
respondent had received when Roxas purchased the subdivision lots. Therefore, for
changing the tenor of the RTC Decision by requiring the reimbursement of P1,800
per square meter, both the Amended Sheriffs Bill and the 2 December 2004 Order
of the RTC were considered null and void.

Further, the CA nullified the Notices of Garnishment issued against the bank
accounts of Arcilla-Maullon. It noted that since the general manager of OLFI was
not impleaded in the proceedings, he could not be held personally liable for the
obligation of the corporation.

Before this Court, petitioner maintains that OLFI should be made to pay P1,800, and
not P40 per square meter as upheld in the 2 December 2004 Order of the RTC.13 For
the immediate enforcement of the Order, petitioner further argues that because OLFI
is a dummy corporation, the bank accounts of its general manager can be garnished
to collect the judgment obligation of respondent.14
Page 153 of 675

Hence, the pertinent issue in this case requires the determination of the correct
amount to be reimbursed by OLFI to Roxas. As a corollary matter, this Court also
resolves the propriety of issuing the Notices of Garnishment against the bank
accounts of Arcilla-Maullon as OLFIs general manager.

RULING OF THE COURT

Based on the dispositive portion of the RTC Decision, OLFI was ordered to
reimburse Roxas for the value of the 92-square-meter property plus legal interest to
be reckoned from the time it was paid to the third-party defendant.

In interpreting this directive, both the trial and the appellate courts differed in
interpreting the amount of reimbursement payable by respondent to petitioner. The
RTC pegged the reimbursable amount at P1,800 per square meter to reflect the
current value of the property, while the CA maintained the original amount of the
lot at P40 per square meter.

To settle the contention, this Court resorts to the provisions of the Civil Code
governing encroachment on property. Under Article 448 pertaining to
encroachments in good faith, as well as Article 450 referring to encroachments in
bad faith, the owner of the land encroached upon petitioner herein has the option
to require respondent builder to pay the price of the land.

Although these provisions of the Civil Code do not explicitly state the reckoning
period for valuing the property, Ballatan v. Court of Appeals15 already specifies that
in the event that the seller elects to sell the lot, "the price must be fixed at the
prevailing market value at the time of payment." More recently, Tuatis v. Spouses
Escol16illustrates that the present or current fair value of the land is to be reckoned
at the time that the landowner elected the choice, and not at the time that the property
was purchased. We quote below the relevant portion of that Decision: 17

Under the second option, Visminda may choose not to appropriate the building and,
instead, oblige Tuatis to pay the present or current fair value of the land.
The P10,000.00 price of the subject property, as stated in the Deed of Sale on
Installment executed in November 1989, shall no longer apply, since Visminda will
be obliging Tuatis to pay for the price of the land in the exercise of Vismindas rights
under Article 448 of the Civil Code, and not under the said Deed. Tuatis obligation
will then be statutory, and not contractual, arising only when Visminda has chosen
her option under Article 448 of the Civil Code.
Page 154 of 675

Still under the second option, if the present or current value of the land, the subject
property herein, turns out to be considerably more than that of the building built
thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay
Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms
of the lease; otherwise, the court will fix the terms. (Emphasis supplied)

In Sarmiento v. Agana,18 we reckoned the valuation of the property at the time that
the real owner of the land asked the builder to vacate the property encroached upon.
Moreover, the oft-cited case Depra v. Dumlao19likewise ordered the courts of origin
to compute the current fair price of the land in cases of encroachment on real
properties.

From these cases, it follows that the CA incorrectly pegged the reimbursable amount
at the old market value of the subject property P40 per square meter as reflected
in the Deed of Absolute Sale20 between the parties. On the other hand, the RTC
properly considered in its 2 December 2004 Order the value of the lot at P1,800 per
square meter, the current fair price as determined in the Amended Sheriffs Bill.
Thus, we reverse the ruling of the CA and reinstate the 2 December 2004 Order of
the RTC directing OLFI to reimburse petitioner at P1,800 per square meter.

Nevertheless, with regard to the issue pertaining to the Notices of Garnishment


issued against the bank accounts of Arcilla-Maullon, we affirm the ruling of the CA.

The appellate court appreciated that in the main case for the recovery of ownership
before the court of origin, only OLFI was named as respondent corporation, and that
its general manager was never impleaded in the proceedings a quo.

Given this finding, this Court holds that since OLFIs general manager was not a
party to the case, the CA correctly ruled that Arcilla-Maullon cannot be held
personally liable for the obligation of the corporation. In Santos v. NLRC,21 this
Court upholds the doctrine of separate juridical personality of corporate entities. The
case emphasizes that a corporation is a juridical entity with a legal personality
separate and distinct from those acting for and on its behalf and, in general, of the
people comprising it.22 Hence, the obligations incurred by the corporation, acting
through its officers such as in this case, are its sole liabilities.23

To hold the general manager of OLFI liable, petitioner claims that it is a mere
business conduit of Arcilla-Maullon, hence, the corporation does not maintain a
bank account separate and distinct from the bank accounts of its members. In support
Page 155 of 675

of this claim, petitioner submits that because OLFI did not rebut the attack on its
legal personality, as alleged in petitioners Opposition and Comments on the Motion
to Quash Notice/Writ of Garnishment dated 15 March 2005,24 respondent effectively
admitted by its silence that it was a mere dummy corporation.

This argument does not persuade us, for any piercing of the corporate veil has to be
done with caution.25 Save for its rhetoric, petitioner fails to adduce any evidence that
would prove OLFI's status as a dummy corporation. In this regard, we recently
explained in Sarona v. NLRC26 as follows:

A court should be mindful of the milieu where it is to be applied.1wphi1 It must be


certain that the corporate fiction was misused to such an extent that injustice, fraud,
or crime was committed against another, in disregard of rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous application.
(Citation omitted)

In any event, in order for us to hold Arcilla-Maullon personally liable alone for the
debts of the corporation and thus pierce the veil of corporate fiction, we have
required that the bad faith of the officer must first be established clearly and
convincingly.27 Petitioner, however, has failed to include any submission pertaining
to any wrongdoing of the general manager. Necessarily, it would be unjust to hold
the latter personally liable.

Therefore, we refuse to allow the execution of a corporate judgment debt against the
general manager of the corporation, since in no legal sense is he the owner of the
corporate property.28 Consequently, this Court sustains the CA in nullifying the
Notices of Garnishment against his bank accounts.

IN VIEW THEREOF, the 25 September 2007 Decision and 11 March 2008


Resolution of the Court of Appeals in CA-GR SP No. 88622 are AFFIRMED with
MODIFICATION in that the value of the 92-square-meter property for which
respondent should reimburse petitioner, as determined by the 2 December 2004
Order of the Regional Trial Court in Civil Case No. 5403, is hereby reinstated
at P1,800 per square meter.

SO ORDERED.
Page 156 of 675

POLYMER RUBBER CORPORATION AND JOSEPH


ANG, Petitioners, v. BAYOLO SALAMUDING,Respondent.

DECISION

REYES, J.:

The instant petition1 assails the Decision2 dated June 30, 2008 of the Court of
Appeals (CA) in CA-G.R. SP No. 98387 directing the recall of the alias writ of
execution and the lifting of the notice of levy on the shares of stocks of petitioner
Joseph Ang (Ang). The Resolution3 dated November 5, 2008 denied the motion for
reconsideration thereof.

The antecedent facts are as follows:cralavvonlinelawlibrary

Herein respondent Bayolo Salamuding (Salamuding), Mariano Gulanan and


Rodolfo Raif (referred to as the complainants) were employees of petitioner Polymer
Rubber Corporation (Polymer), who were dismissed after allegedly committing
certain irregularities against Polymer.

On July 24, 1990, the three employees filed a complaint against Polymer and Ang
(petitioners) for unfair labor practice, illegal dismissal, non-payment of overtime
services, violation of Presidential Decree No. 851, with prayer for reinstatement and
payment of back wages, attorneys fees, moral and exemplary damages. 4

On November 21, 1990, the Labor Arbiter (LA) rendered a decision, the dispositive
portion of which reads:cralavvonlinelawlibrary
WHEREFORE, judgment is hereby rendered dismissing the complainant unfair
labor practice (sic) but directing the respondent the
following:cralavvonlinelawlibrary
Page 157 of 675

1. Reinstate complainants to their former position with full back wages from the
time they were illegally dismissed up to the time of reinstatement.

2. To pay individual complainants their 13th month pay and for the year 1990 in the
following amount:cralavvonlinelawlibrary
a. Mariano Gulanan.................[P]3,194
b. Rodolfo Raif.......................[P]3,439
c. Bayolo Salam[u]ding.............[P]3,284

3. To pay individual complainants overtime in the amount of [P]1,335 each.

4. To pay individual complainants overtime in the amount of [P]6,608.80 each.

5. To pay individual complainants moral and exemplary damages in the amount of


[P]10,000 each.

6. To pay attorneys fee equivalent to ten (10) percent of the total monetary award
of the complainants.

SO ORDERED.5nadcralavvonlinelawlibrary

A writ of execution was subsequently issued on April 18, 1991 to implement the
aforesaid judgment.6

The petitioners appealed to the National Labor Relations Commission (NLRC).

On April 7, 1992, the NLRC affirmed the decision of the LA with


modifications. The NLRC deleted the award of moral and exemplary damages,
service incentive pay, and modified the computation of 13th month pay. 7 The
corresponding Entry of Judgment was made on September 25, 1992,8 and an alias
writ of execution was issued on October 29, 1992, based on the NLRC decision. 9

The case was subsequently elevated to the Supreme Court (SC) on a petition
for certiorari. In a Resolution dated September 29, 1993, the Court affirmed the
disposition of the NLRC with the further modification that the award of overtime
pay to the complainants was deleted.10

On September 30, 1993, Polymer ceased its operations.11


Page 158 of 675

Upon a motion dated November 11, 1994, the LA a quo issued a writ of execution
on November 16, 1994 based on the SC resolution. Since the writ of execution was
returned unsatisfied, another alias writ of execution was issued on June 4, 1997. 12

In the latter part of 2004, Polymer with all its improvements in the premises was
gutted by fire.13

On December 2, 2004, the complainants filed a Motion for Recomputation and


Issuance of Fifth (5th) Alias Writ of Execution. The Research and Computation Unit
of the NLRC came up with the total amount of P2,962,737.65. Due to the failure of
the petitioners to comment/oppose the amount despite notice, the LA approved said
amount.14

Thus, on April 26, 2005, the LA issued a 5th Alias Writ of Execution 15 prayed for
commanding the sheriff to collect the amount.

In the implementation of this alias writ of execution dated April 26, 2005, the shares
of stocks of Ang at USA Resources Corporation were levied.

On November 10, 2005, the petitioners moved to quash the 5th alias writ of
execution, and to lift the notice of garnishment.16 They alleged that: a) Ang should
not be held jointly and severally liable with Polymer since it was only the latter
which was held liable in the decision of the LA, NLRC and the Supreme Court; b)
the computation of the monetary award in favor of the complainants in the amount
of P2,962,737.65 was misleading, anomalous and highly erroneous; and c) the
decision sought to be enforced by mere motion is already barred by the statute of
limitations.17

In an Order18 dated December 16, 2005, the LA granted the motion. The LA ordered
the quashal and recall of the writ of execution, as well as the lifting of the notice of
levy on Angs shares of stocks.

The LA ruled that the Decision dated November 21, 1990 did not contain any
pronouncement that Ang was also liable. To hold Ang liable at this stage when the
decision had long become final and executory will vary the tenor of the judgment,
or in excess of its terms. As to the extent of the computation of the backwages, the
same must only cover the period during which the company was in actual
operation. Further, the LA found that the complainants motion to execute the LAs
Page 159 of 675

decision was already barred by the statute of limitations. The fallo of the decision
reads:cralavvonlinelawlibrary

WHEREFORE, premises all considered, an order is hereby rendered quashing and


recalling the Writ of Execution and lifting the Notice of Levy on the Shares of Stocks
of respondent Joseph Ang.19nadcralavvonlinelawlibrary

On appeal, the NLRC affirmed the findings of the LA in a Decision20 dated


September 27, 2006. It, however, made a pronouncement that the complainants did
not sleep on their rights as they continued to file series of motions for the execution
of the monetary award and are, thus, not barred by the statute of limitations. The
appeal on the aspect of the lifting of the notice of levy on the shares of stocks of Ang
was dismissed. The dispositive portion of the decision reads as
follows:cralavvonlinelawlibrary
WHEREFORE, the assailed Order dated December 16, 2005 is hereby AFFIRMED
with MODIFICATION declaring the rights of the complainants to execute the
Decision dated November 21, 1990 not having barred by the statute of
limitations. The appeal is hereby, DISMISSED for lack of merit.21

On January 12, 2007, the NLRC denied the motion for reconsideration of the
foregoing decision.22

Undeterred, Salamuding filed a Petition for Certiorari23 before the CA.

On June 30, 2008, the CA found merit with the petition.24 The CA stated that there
has to be a responsible person or persons working in the interest of Polymer who
may also be considered as the employer, invoking the cases of NYK Intl. Knitwear
Corp. Phils. v. NLRC25 and A.C. Ransom Labor Union-CCLU v. NLRC.26 Since
Ang as the director of Polymer was considered the highest ranking officer of
Polymer, he was therefore properly impleaded and may be held jointly and severally
liable for the obligations of Polymer to its dismissed employees. Thus, the
dispositive portion of the assailed decision reads as follows:cralavvonlinelawlibrary
WHEREFORE, the petition is granted in part. The Decision dated September 27,
2006 and the Resolution dated January 12, 2007 of respondent NLRC are hereby
annulled and set aside insofar as they direct the recall and quashal of the Writ of
Execution and lifting of the Notice of Levy on the shares of stock of respondent
Joseph Ang. The Order dated December 16, 2005 of the Honorable Labor Arbiter
Page 160 of 675

Ramon Valentin C. Reyes is nullified.

Let the records of the case be remanded to the Labor Arbiter for execution of the
Decision dated November 21, 1990 as modified by the NLRC against the
respondents Polymer Rubber Corporation and Joseph Ang.27

Aggrieved by the CA decision, the petitioners filed the instant petition raising the
following questions of law:cralavvonlinelawlibrary

a. That upon the finality of the Decision, the same can no longer be altered or
modified[;]
b. That the Officer of the Corporation cannot be personally held liable and be made
to pay the liability of the corporation[;]
c. That the losing party cannot be held liable to pay the salaries and benefits of the
employees beyond the companies [sic] existence;chanroblesvirtualawlibrary
d. That the separation pay of employees of the company which has closed its
business permanently is only half month salary for every year of service.28

There is merit in the petition.

A corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the directors and officers acts as
corporate agents, are not their personal liability but the direct responsibility of the
corporation they represent. As a rule, they are only solidarily liable with the
corporation for the illegal termination of services of employees if they acted with
malice or bad faith.29

To hold a director or officer personally liable for corporate obligations, two


requisites must concur: (1) it must be alleged in the complaint that the director or
officer assented to patently unlawful acts of the corporation or that the officer was
guilty of gross negligence or bad faith; and (2) there must be proof that the officer
acted in bad faith.30

In the instant case, the CA imputed bad faith on the part of the petitioners when
Polymer ceased its operations the day after the promulgation of the SC resolution in
1993 which was allegedly meant to evade liability. The CA found it necessary to
pierce the corporate fiction and pointed at Ang as the responsible person to pay for
Salamudings money claims. Except for this assertion, there is nothing in the
Page 161 of 675

records that show that Ang was responsible for the acts complained of. At any rate,
we find that it will require a great stretch of imagination to conclude that a
corporation would cease its operations if only to evade the payment of the adjudged
monetary awards in favor of three (3) of its employees.

The dispositive portion of the LA Decision dated November 21, 1990 which
Salamuding attempts to enforce does not mention that Ang is jointly and severally
liable with Polymer. Ang is merely one of the incorporators of Polymer and to single
him out and require him to personally answer for the liabilities of Polymer is without
basis. In the absence of a finding that he acted with malice or bad faith, it was error
for the CA to hold him responsible.

In Aliling v. Feliciano,31 the Court explained to wit:cralavvonlinelawlibrary

The CA held the president of WWWEC, Jose B. Feliciano, San Mateo and Lariosa
jointly and severally liable for the monetary awards of Aliling on the ground that the
officers are considered employers acting in the interest of the corporation. The
CA cited NYK International Knitwear Corporation Philippines (NYK) v. National
Labor Relations Commission in support of its argument. Notably, NYK in turn cited
A.C. Ransom Labor Union-CCLU v. NLRC.

Such ruling has been reversed by the Court in Alba v. Yupangco, where the Court
ruled:cralavvonlinelawlibrary
By Order of September 5, 2007, the Labor Arbiter denied respondents motion to
quash the 3rd alias writ. Brushing aside respondents contention that his liability is
merely joint, the Labor Arbiter ruled:cralavvonlinelawlibrary
Such issue regarding the personal liability of the officers of a corporation for the
payment of wages and money claims to its employees, as in the instant case, has long
been resolved by the Supreme Court in a long list of cases [A.C. Ransom Labor
Union-CLU vs. NLRC (142 SCRA 269) and reiterated in the cases of Chua vs.
NLRC (182 SCRA 353), Gudez vs. NLRC (183 SCRA 644)]. In the aforementioned
cases, the Supreme Court has expressly held
that the irresponsible officer of the corporation (e.g., President) is liable for the
corporations obligations to its workers. Thus, respondent Yupangco, being the
president of the respondent YL Land and Ultra Motors Corp., is properly jointly and
severally liable with the defendant corporations for the labor claims of Complainants
Alba and De Guzman. x x x

xxxx
Page 162 of 675

As reflected above, the Labor Arbiter held that respondents liability is solidary.

There is solidary liability when the obligation expressly so states, when the law so
provides, or when the nature of the obligation so requires. MAM Realty Development
Corporation v. NLRC, on solidary liability of corporate officers in labor disputes,
enlightens:cralavvonlinelawlibrary
x x x A corporation being a juridical entity, may act only through its directors,
officers and employees. Obligations incurred by them, acting as such corporate
agents are not theirs but the direct accountabilities of the corporation they represent.
True solidary liabilities may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following
cases:cralavvonlinelawlibrary

1. When directors and trustees or, in appropriate cases, the officers of a


corporation:cralavvonlinelawlibrary

(a) vote for or assent to patently unlawful acts of the


corporation;chanroblesvirtualawlibrary

(b) act in bad faith or with gross negligence in directing the corporate
affairs;chanroblesvirtualawlibrary

xxxx
In labor cases, for instance, the Court has held corporate directors and officers
solidarily liable with the corporation for the termination of employment of
employees done with malice or in bad faith.32 (Citations omitted and underscoring
ours)

To hold Ang personally liable at this stage is quite unfair. The judgment of the LA,
as affirmed by the NLRC and later by the SC had already long become final and
executory. It has been held that a final and executory judgment can no longer be
altered. The judgment may no longer be modified in any respect, even if the
modification is meant to correct what is perceived to be an erroneous conclusion of
fact or law, and regardless of whether the modification is attempted to be made by
the court rendering it or by the highest Court of the land.33 Since the alias writ of
execution did not conform, is different from and thus went beyond or varied the
tenor of the judgment which gave it life, it is a nullity. To maintain otherwise would
be to ignore the constitutional provision against depriving a person of his property
Page 163 of 675

without due process of law.34

Anent the computation of their liability for the payment of separation pay in lieu of
reinstatement in favor of Salamuding, the Court agrees with the ruling of the LA that
it must be computed only up to the time Polymer ceased operations in September
1993. The computation must be based on the number of days when Polymer was in
actual operation.35 It cannot be held liable to pay separation pay beyond such closure
of business because even if the illegally dismissed employees would be reinstated,
they could not possibly work beyond the time of the cessation of its operation. 36 In
the case of Chronicle Securities Corp. v. NLRC,37 we ruled that even an employer
who is found guilty of unfair labor practice in dismissing his employee may not be
ordered so to pay backwages beyond the date of closure of business where such
closure was due to legitimate business reasons and not merely an attempt to defeat
the order of reinstatement.38

WHEREFORE, the petition is GRANTED. The Decision dated June 30, 2008 and
the Resolution dated November 5, 2008 of the Court of Appeals in CA-G.R. SP No.
98387 are SET ASIDE. The Decision of the National Labor Relations Commission
dated September 27, 2006 is REINSTATED. Let the records of the case be
remanded to the Labor Arbiter for proper computation of the award in accordance
with this decision.

SO ORDERED.

G.R. No. 196036 October 23, 2013

ELIZABETH M. GAGUI, Petitioner,


vs.
SIMEON DEJERO and TEODORO R. PERMEJO, Respondents.

DECISION

SERENO, CJ:

This is a Rule 45 Petition1 dated 30 March 2011 assailing the Decision2 and
Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 104292, which
affirmed the Decision4 of the National Labor Relations Commission (NLRC) in
NLRC Case No. OCW-RAB-IV-4-392-96-RI, finding petitioner Elizabeth M. Gagui
Page 164 of 675

solidarily liable with the placement agency, PRO Agency Manila, Inc., to pay
respondents all the money claims awarded by virtue of their illegal dismissal.

The antecedent facts are as follows:

On 14 December 1993, respondents Simeon Dejero and Teodoro Permejo filed


separate Complaints5 for illegal dismissal, nonpayment of salaries and overtime pay,
refund of transportation expenses, damages, and attorneys fees against PRO Agency
Manila, Inc., and Abdul Rahman Al Mahwes.

After due proceedings, on 7 May 1997, Labor Arbiter Pedro Ramos rendered a
Decision,6 the dispositive portion of which reads:

WHEREFORE, ALL FOREGOING CONSIDERED, judgment is hereby rendered


ordering respondents Pro Agency Manila, Inc., and Abdul Rahman Al Mahwes to
jointly and severally pay complainants, as follows:

a) US$4,130.00 each complainant or a total of US$8,260.00, their unpaid


salaries from July 31, 1992 up to September 1993, less cash advances of total
of SR11,000.00, or its Peso equivalent at the time of payment;

b) US$1,032.00 each complainant for two (2) hours overtime pay for fourteen
(14) months of services rendered or a total of US$2,065.00 or its Peso
equivalent at the time of payment;

c) US$2,950.00 each complainant or a total of US$5,900.00 or its Peso


equivalent at the time of payment, representing the unexpired portion of their
contract;

d) Refund of plane ticket of complainants Teodoro Parejo and Simeon Dejero


from Saudi Arabia to the Philippines, in the amount of P15,642.90
and P16,932.00 respectively;

e) Refund of excessive collection of placement fees in the amount


of P4,000.00 each complainant, or a total of P8,000.00;

f) Moral and exemplary damages in the amount of P10,000.00 each


complainant, or a total of P20,000.00;

g) Attorneys fees in the amount of P48,750.00.


Page 165 of 675

SO ORDERED.

Pursuant to this Decision, Labor Arbiter Ramos issued a Writ of Execution 7 on 10


October 1997. When the writ was returned unsatisfied,8 an Alias Writ of Execution
was issued, but was also returned unsatisfied.9

On 30 October 2002, respondents filed a Motion to Implead Respondent Pro Agency


Manila, Inc.s Corporate Officers and Directors as Judgment Debtors.10 It included
petitioner as the Vice-President/Stockholder/Director of PRO Agency, Manila, Inc.

After due hearing, Executive Labor Arbiter Voltaire A. Balitaan issued an Order11 on
25 April 2003 granting respondents motion, to wit:

WHEREFORE, the motion to implead is hereby granted insofar as Merlita G. Lapuz


and Elizabeth M. Gagui as parties-respondents and accordingly held liable to
complainant jointly and solidarily with the original party-respondent adjudged liable
under the Decision of May 7, 1998. Let 2nd Alias Writ of Execution be issued for
the enforcement of the Decision consistent with the foregoing tenor.

SO ORDERED.

On 10 June 2003, a 2nd Alias Writ of Execution was issued,12 which resulted in the
garnishment of petitioners bank deposit in the amount of P85,430.48.13 However,
since the judgment remained unsatisfied, respondents sought the issuance of a third
alias writ of execution on 26 February 2004.14

On 15 December 2004, Executive Labor Arbiter Lita V. Aglibut issued an


Order15 granting respondents motion for a third alias writ. Accordingly, the 3rd
Alias Writ of Execution16 was issued on 6 June 2005, resulting in the levying of two
parcels of lot owned by petitioner located in San Fernando, Pampanga.17

On 14 September 2005, petitioner filed a Motion to Quash 3rd Alias Writ of


Execution;18 and on 29 June 2006, a Supplemental Motion to Quash Alias Writ of
Execution.19 In these motions, petitioner alleged that apart from not being made
aware that she was impleaded as one of the parties to the case,20 the dispositive
portion of the 7 May 1997 Decision (1997 Decision) did not hold her liable in any
form whatsoever.21 More importantly, impleading her for the purpose of execution
was tantamount to modifying a decision that had long become final and executory. 22
Page 166 of 675

On 26 June 2006, Executive Labor Arbiter Lita V. Aglibut issued an Order23 denying
petitioners motions on the following grounds: (1) records disclosed that despite
having been given sufficient notices to be able to register an opposition, petitioner
refused to do so, effectively waiving her right to be heard;24 and (2) under Section
10 of Republic Act No. 8042 (R.A. 8042) or the Migrant Workers and Overseas
Filipinos Act of 1995, corporate officers may be held jointly and severally liable
with the placement agency for the judgment award.25

Aggrieved, petitioner appealed to the NLRC, which rendered a Decision 26 in the


following wise:

WHEREFORE, premises considered, the appeal of the respondent Elizabeth M.


Gagui is hereby DENIED for lack of merit. Accordingly, the Order of Labor Arbiter
Lita V. Aglibut dated June 26, 2006 is AFFIRMED.

SO ORDERED.

The NLRC ruled that "in so far as overseas migrant workers are concerned, it is R.A.
8042 itself that describes the nature of the liability of the corporation and its officers
and directors. x x x [I]t is not essential that the individual officers and directors be
impleaded as party respondents to the case instituted by the worker. A finding of
liability on the part of the corporation will necessarily mean the liability of the
corporate officers or directors."27

Upon appellate review, the CA affirmed the NLRC in a Decision28 promulgated on


15 November 2010:

From the foregoing, the Court finds no reason to hold the NLRC guilty of grave
abuse of discretion amounting to lack or excess of jurisdiction in affirming the Order
of Executive Labor Arbiter Aglibut which held petitioner solidarily liable with PRO
Agency Manila, Inc. and Abdul Rahman Al Mahwes as adjudged in the May 7, 1997
Decision of Labor Arbiter Pedro Ramos.

WHEREFORE, the Petition is DENIED.

SO ORDERED. (Emphasis in the original)

The CA stated that there was "no need for petitioner to be impleaded x x x because
by express provision of the law, she is made solidarily liable with PRO Agency
Manila, Inc., for any and all money claims filed by private respondents."29 The CA
Page 167 of 675

further said that this is not a case in which the liability of the corporate officer must
be established because an allegation of malice must be proven. The general rule is
that corporate officers, directors and stockholders are not liable, except when they
are made liable for their corporate act by a specific provision of law, such as R.A.
8042.30

On 8 and 15 December 2010, petitioner filed two Motions for Reconsideration, but
both were denied in a Resolution31 issued by the CA on 25 February 2011.

Hence, this Petition for Review filed on 30 March 2011.

On 1 August 2011, respondents filed their Comment,32 alleging that the petition had
been filed 15 days after the prescriptive period of appeal under Section 2, Rule 45
of the Rules of Court.

On 14 February 2012, petitioner filed a Reply,33 countering that she has a fresh
period of 15 days from 16 March 2011 (the date she received the Resolution of the
CA) or up to 31 March 2011 to file the Petition.

ISSUES

From the foregoing, we reduce the issues to the following:

1. Whether or not this petition was filed on time; and

2. Whether or not petitioner may be held jointly and severally liable with PRO
Agency Manila, Inc. in accordance with Section 10 of R.A. 8042, despite not
having been impleaded in the Complaint and named in the Decision.

THE COURTS RULING

Petitioner has a fresh period of 15 days within which to file this petition, in
accordance with the Neypes rule.

We first address the procedural issue of this case.

In a misleading attempt to discredit this petition, respondents insist that by opting to


file a Motion for Reconsideration instead of directly appealing the CA Decision,
petitioner effectively lost her right to appeal. Hence, she should have sought an
extension of time to file her appeal from the denial of her motion.
Page 168 of 675

This contention, however, deserves scant consideration. We agree with petitioner


that starting from the date she received the Resolution denying her Motion for
Reconsideration, she had a "fresh period" of 15 days within which to appeal to this
Court. The matter has already been settled in Neypes v. Court of Appeals,34 as
follows:

To standardize the appeal periods provided in the Rules and to afford litigants fair
opportunity to appeal their cases, the Court deems it practical to allow a fresh period
of 15 days within which to file the notice of appeal in the Regional Trial Court,
counted from receipt of the order dismissing a motion for a new trial or motion for
reconsideration.

Henceforth, this "fresh period rule" shall also apply to Rule 40 governing appeals
from the Municipal Trial Courts to the Regional Trial Courts; Rule 42 on petitions
for review from the Regional Trial Courts to the Court of Appeals; Rule 43 on
appeals from quasi-judicial agencies to the Court of Appeals and Rule 45 governing
appeals by certiorari to the Supreme Court. The new rule aims to regiment or make
the appeal period uniform, to be counted from receipt of the order denying the
motion for new trial, motion for reconsideration (whether full or partial) or any final
order or resolution.

Since petitioner received the CA Resolution denying her two Motions for
Reconsideration only on 16 March 2011, she had another 15 days within which to
file her Petition, or until 31 March 2011. This Petition, filed on 30 March 2011, fell
within the prescribed 15-day period.

Petitioner may not be held jointly and severally liable, absent a finding that she was
remiss in directing the affairs of the agency.

As to the merits of the case, petitioner argues that while it is true that R.A. 8042 and
the Corporation Code provide for solidary liability, this liability must be so stated in
the decision sought to be implemented.35 Absent this express statement, a corporate
officer may not be impleaded and made to personally answer for the liability of the
corporation.36 Moreover, the 1997 Decision had already been final and executory for
five years and, as such, can no longer be modified.37 If at all, respondents are clearly
guilty of laches for waiting for five years before taking action against petitioner.38

In disposing the issue, the CA cited Section 10 of R.A. 8042, stating that there was
"no need for petitioner to be impleaded x x x because by express provision of the
Page 169 of 675

law, she is made solidarily liable with PRO Agency Manila, Inc., for any and all
money claims filed by private respondents."39

We reverse the CA.

At the outset, we have declared that "R.A. 8042 is a police power measure intended
to regulate the recruitment and deployment of OFWs. It aims to curb, if not
eliminate, the injustices and abuses suffered by numerous OFWs seeking to work
abroad."40

The pertinent portion of Section 10, R.A. 8042 reads as follows:

SEC. 10. MONEY CLAIMS. - Notwithstanding any provision of law to the contrary,
the Labor Arbiters of the National Labor Relations Commission (NLRC) shall have
the original and exclusive jurisdiction to hear and decide, within ninety (90) calendar
days after filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for
overseas deployment including claims for actual, moral, exemplary and other forms
of damages.

The liability of the principal/employer and the recruitment/placement agency for any
and all claims under this section shall be joint and several. This provision shall be
incorporated in the contract for overseas employment and shall be a condition
precedent for its approval. The performance bond to be filed by the
recruitment/placement agency, as provided by law, shall be answerable for all
money claims or damages that may be awarded to the workers. If the
recruitment/placement agency is a juridical being, the corporate officers and
directors and partners as the case may be, shall themselves be jointly and solidarily
liable with the corporation or partnership for the aforesaid claims and damages.
(Emphasis supplied)

In Sto. Tomas v. Salac,41 we had the opportunity to pass upon the constitutionality
of this provision. We have thus maintained:

The key issue that Gumabay, et al. present is whether or not the 2nd paragraph of
Section 10, R.A. 8042, which holds the corporate directors, officers, and partners of
recruitment and placement agencies jointly and solidarily liable for money claims
and damages that may be adjudged against the latter agencies, is unconstitutional.

xxxx
Page 170 of 675

But the Court has already held, pending adjudication of this case, that the liability of
corporate directors and officers is not automatic. To make them jointly and solidarily
liable with their company, there must be a finding that they were remiss in directing
the affairs of that company, such as sponsoring or tolerating the conduct of illegal
activities. In the case of Becmen and White Falcon, while there is evidence that these
companies were at fault in not investigating the cause of Jasmins death, there is no
mention of any evidence in the case against them that intervenors Gumabay, et al.,
Becmens corporate officers and directors, were personally involved in their
companys particular actions or omissions in Jasmins case. (Emphasis supplied)

Hence, for petitioner to be found jointly and solidarily liable, there must be a separate
finding that she was remiss in directing the affairs of the agency, resulting in the
illegal dismissal of respondents. Examination of the records would reveal that there
was no finding of neglect on the part of the petitioner in directing the affairs of the
agency. In fact, respondents made no mention of any instance when petitioner
allegedly failed to manage the agency in accordance with law, thereby contributing
to their illegal dismissal.

Moreover, petitioner is correct in saying that impleading her for the purpose of
execution is tantamount to modifying a decision that had long become final and
executory.42 The fallo of the 1997 Decision by the NLRC only held "respondents
Pro Agency Manila Inc., and Abdul Rahman Al Mahwes to jointly and severally pay
complainants x x x."43 By holding her liable despite not being ordained as such by
the decision, both the CA and NLRC violated the doctrine on immutability of
judgments.

In PH Credit Corporation v. Court of Appeals,44 we stressed that "respondent's


petitioners obligation is based on the judgment rendered by the trial court. The
dispositive portion or the fallo is its decisive resolution and is thus the subject of
execution. x x x. Hence the execution must conform with that which is ordained or
decreed in the dispositive portion of the decision."

In JNIMACO v. NLRC,45 we a]so held thus:

None of the parties in the case before the Labor Arbiter appealed the Decision dated
March 10, 1987, hence the same became final and executory. It was, therefore,
removed from the jurisdiction of the Labor Arbiter or the NLRC to further alter or
amend it. Thus, the proceedings held for the purpose of amending or altering the
dispositive portion of the said decision are null and void for lack of jurisdiction.
Page 171 of 675

Also, the Alias Writ of Execution is null and void because it varied the tenor of the
judgment in that it sought to enforce the final judgment against ''Antonio
Gonzales/Industrial Management Development Corp. (INIMACO) and/or Filipinas
Carbon and Mining Corp. and Gerardo Sicat, which makes the liability solidary.

In other words, "once a decision or order becomes final and executory, it is removed
from. the power or jurisdiction of the court which rendered it to further alter or
amend it. It thereby becomes immutable and unalterable and any amendment or
alteration which substantially affects a final and executory judgment is null and void
for lack of jurisdiction, including the entire proceedings held for that purpose. An
order of exen1tion which varies the tenor of the judgment or exceeds the terms
thereof is a nullity."46

While labor laws should be construed liberally in favor of labor, we must be able to
balance this with the equally important right of petitioner to due process. Because
the 1997 Decision of Labor Arbiter Ramos was not appealed, it became final and
executory and was therefore removed from his jurisdiction. Modifying the tenor of
the judgment via a motion impleading petitioner and filed only in 2002 runs contrary
to settled jurisprudence, rendering such action a nullity. WHEREFORE, the Petition
for Review on Certiorari is hereby GRANTED The assailed Decision dated 5
November 2010 and Resolution dated 25 February 2011 of the Court of Appeals in
CA-G.R. SP No. 104292 are hereby REVERSED.

SO ORDERED.

PHILIP TURNER and ELNORA G.R. No. 157479


TURNER,
Petitioners, Present:

CARPIO MORALES, Chairperson,


BRION,
Page 172 of 675

-versus - BERSAMIN,
VILLARAMA, JR., and
ARANAL-SERENO, JJ.
Promulgated:
LORENZO SHIPPING
CORPORATION, November 24, 2010
Respondent.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

This case concerns the right of dissenting stockholders to demand payment of the
value of their shareholdings.

In the stockholders suit to recover the value of their shareholdings from the
corporation, the Regional Trial Court (RTC) upheld the dissenting stockholders,
herein petitioners, and ordered the corporation, herein respondent, to pay. Execution
was partially carried out against the respondent. On the respondents petition
for certiorari, however, the Court of Appeals (CA) corrected the RTC and dismissed
the petitioners suit on the ground that their cause of action for collection had not yet
accrued due to the lack of unrestricted retained earnings in the books of the
respondent.

Thus, the petitioners are now before the Court to challenge the CAs decision
promulgated on March 4, 2003 in C.A.-G.R. SP No. 74156 entitled Lorenzo
Shipping Corporation v. Hon. Artemio S. Tipon, in his capacity as Presiding Judge
of Branch 46 of the Regional Trial Court of Manila, et al.[1]

Antecedents
Page 173 of 675

The petitioners held 1,010,000 shares of stock of the respondent, a domestic


corporation engaged primarily in cargo shipping activities. In June 1999, the
respondent decided to amend its articles of incorporation to remove the stockholders
pre-emptive rights to newly issued shares of stock. Feeling that the corporate move
would be prejudicial to their interest as stockholders, the petitioners voted against
the amendment and demanded payment of their shares at the rate of P2.276/share
based on the book value of the shares, or a total of P2,298,760.00.
The respondent found the fair value of the shares demanded by the petitioners
unacceptable. It insisted that the market value on the date before the action to remove
the pre-emptive right was taken should be the value, or P0.41/share (or a total
of P414,100.00), considering that its shares were listed in the Philippine Stock
Exchange, and that the payment could be made only if the respondent had
unrestricted retained earnings in its books to cover the value of the shares, which
was not the case.
The disagreement on the valuation of the shares led the parties to constitute an
appraisal committee pursuant to Section 82 of the Corporation Code, each of them
nominating a representative, who together then nominated the third member who
would be chairman of the appraisal committee. Thus, the appraisal committee came
to be made up of Reynaldo Yatco, the petitioners nominee; Atty. Antonio Acyatan,
the respondents nominee; and Leo Anoche of the Asian Appraisal Company, Inc.,
the third member/chairman.
On October 27, 2000, the appraisal committee reported its valuation
of P2.54/share, for an aggregate value of P2,565,400.00 for the petitioners.[2]

Subsequently, the petitioners demanded payment based on the valuation of


the appraisal committee, plus 2%/month penalty from the date of their original
demand for payment, as well as the reimbursement of the amounts advanced as
professional fees to the appraisers.[3]

In its letter to the petitioners dated January 2, 2001,[4] the respondent refused the
petitioners demand, explaining that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal rights could be paid only when
the corporation had unrestricted retained earnings to cover the fair value of the
shares, but that it had no retained earnings at the time of the petitioners demand, as
Page 174 of 675

borne out by its Financial Statements for Fiscal Year 1999 showing a deficit
of P72,973,114.00 as of December 31, 1999.
Upon the respondents refusal to pay, the petitioners sued the respondent for
collection and damages in the RTC in Makati City on January 22, 2001. The case,
docketed as Civil Case No. 01-086, was initially assigned to Branch 132.[5]
On June 26, 2002, the petitioners filed their motion for partial summary judgment,
claiming that:

7) xxx the defendant has an accumulated unrestricted retained


earnings of ELEVEN MILLION NINE HUNDRED
SEVENTY FIVE THOUSAND FOUR HUNDRED NINETY
(P11,975,490.00) PESOS, Philippine Currency, evidenced by
its Financial Statement as of the Quarter Ending March 31,
2002; xxx

8) xxx the fair value of the shares of the petitioners as fixed by


the Appraisal Committee is final, that the same cannot be
disputed xxx

9) xxx there is no genuine issue to material fact and therefore,


the plaintiffs are entitled, as a matter of right, to a summary
judgment. xxx [6]

The respondent opposed the motion for partial summary judgment, stating that the
determination of the unrestricted retained earnings should be made at the end
of the fiscal year of the respondent, and that the petitioners did not have a
cause of action against the respondent.
During the pendency of the motion for partial summary judgment, however, the
Presiding Judge of Branch 133 transmitted the records to the Clerk of Court
for re-raffling to any of the RTCs special commercial courts
in Makati City due to the case being an intra-corporate dispute. Hence, Civil
Case No. 01-086 was re-raffled to Branch 142.

Nevertheless, because the principal office of the respondent was in


Manila, Civil Case No. 01-086 was ultimately transferred to Branch 46 of the RTC
Page 175 of 675

in Manila, presided by Judge Artemio Tipon,[7] pursuant to the Interim Rules of


Procedure on Intra-Corporate Controversies (Interim Rules) requiring intra-
corporate cases to be brought in the RTC exercising jurisdiction over the place where
the principal office of the corporation was found.

After the conference in Civil Case No. 01-086 set on October 23, 2002, which the
petitioners counsel did not attend, Judge Tipon issued an order,[8] granting the
petitioners motion for partial summary judgment, stating:

As to the motion for partial summary judgment, there is no


question that the 3-man committee mandated to appraise the
shareholdings of plaintiff submitted its recommendation on October 27,
2000 fixing the fair value of the shares of stocks of the plaintiff at P2.54
per share. Under Section 82 of the Corporation Code:

The findings of the majority of the appraisers shall be final,


and the award shall be paid by the corporation within thirty (30)
days after the award is made.

The only restriction imposed by the Corporation Code is

That no payment shall be made to any dissenting


stockholder unless the corporation has unrestricted retained
earning in its books to cover such payment.

The evidence submitted by plaintiffs shows that in its quarterly


financial statement it submitted to the Securities and Exchange
Commission, the defendant has retained earnings of P11,975,490 as
of March 21, 2002. This is not disputed by the defendant. Its only
argument against paying is that there must be unrestricted retained
earning at the time the demand for payment is made.

This certainly is a very narrow concept of the appraisal right of a


stockholder. The law does not say that the unrestricted retained earnings
must exist at the time of the demand. Even if there are no retained
earnings at the time the demand is made if there are retained earnings
later, the fair value of such stocks must be paid. The only restriction is
that there must be sufficient funds to cover the creditors after the
Page 176 of 675

dissenting stockholder is paid. No such allegations have been made by


the defendant.[9]

On November 12, 2002, the respondent filed a motion for reconsideration.

On the scheduled hearing of the motion for reconsideration on November 22,


2002, the petitioners filed a motion for immediate execution and a motion to strike
out motion for reconsideration. In the latter motion, they pointed out that the motion
for reconsideration was prohibited by Section 8 of the Interim Rules. Thus, also
on November 22, 2002, Judge Tipon denied the motion for reconsideration and
granted the petitioners motion for immediate execution.[10]

Subsequently, on November 28, 2002, the RTC issued a writ of execution.[11]


Aggrieved, the respondent commenced a special civil action for certiorari in the CA
to challenge the two aforecited orders of Judge Tipon, claiming that:

A.
JUDGE TIPON GRAVELY ABUSED HIS DISCRETION IN
GRANTING SUMMARY JUDGMENT TO THE SPOUSES
TURNER, BECAUSE AT THE TIME THE COMPLAINT WAS
FILED, LSC HAD NO RETAINED EARNINGS, AND THUS WAS
COMPLYING WITH THE LAW, AND NOT VIOLATING ANY
RIGHTS OF THE SPOUSES TURNER, WHEN IT REFUSED TO
PAY THEM THE VALUE OF THEIR LSC SHARES. ANY
RETAINED EARNINGS MADE A YEAR AFTER
THE COMPLAINT WAS FILED ARE IRRELEVANT TO THE
SPOUSES TURNERS RIGHT TO RECOVER UNDER THE
COMPLAINT, BECAUSE THE WELL-SETTLED RULE,
REPEATEDLY BROUGHT TO JUDGE TIPONS ATTENTION, IS
IF NO RIGHT EXISTED AT THE TIME (T)HE ACTION WAS
COMMENCED THE SUIT CANNOT BE MAINTAINED,
ALTHOUGH SUCH RIGHT OF ACTION MAY HAVE ACCRUED
THEREAFTER.

B.
Page 177 of 675

JUDGE TIPON IGNORED CONTROLLING CASE LAW, AND


THUS GRAVELY ABUSED HIS DISCRETION, WHEN HE
GRANTED AND ISSUED THE QUESTIONED WRIT OF
EXECUTION DIRECTING THE EXECUTION OF HIS PARTIAL
SUMMARY JUDGMENT IN FAVOR OF THE SPOUSES TURNER,
BECAUSE THAT JUDGMENT IS NOT A FINAL JUDGMENT
UNDER SECTION 1 OF RULE 39 OF THE RULES OF COURT
AND THEREFORE CANNOT BE SUBJECT OF EXECUTION
UNDER THE SUPREME COURTS CATEGORICAL HOLDING
IN PROVINCE OF PANGASINAN VS. COURT OF APPEALS.

Upon the respondents application, the CA issued a temporary restraining order


(TRO), enjoining the petitioners, and their agents and representatives from enforcing
the writ of execution. By then, however, the writ of execution had been partially
enforced.

The TRO lapsed without the CA issuing a writ of preliminary injunction to


prevent the execution. Thereupon, the sheriff resumed the enforcement of the writ
of execution.

The CA promulgated its assailed decision on March 4, 2003,[12] pertinently


holding:
However, it is clear from the foregoing that the Turners appraisal
right is subject to the legal condition that no payment shall be made to
any dissenting stockholder unless the corporation has unrestricted
retained earnings in its books to cover such payment. Thus, the
Supreme Court held that:

The requirement of unrestricted retained earnings to


cover the shares is based on the trust fund doctrine which
means that the capital stock, property and other assets of a
corporation are regarded as equity in trust for the payment of
corporate creditors. The reason is that creditors of a
corporation are preferred over the stockholders in the
distribution of corporate assets. There can be no distribution
of assets among the stockholders without first paying
corporate creditors. Hence, any disposition of corporate funds
Page 178 of 675

to the prejudice of creditors is null and void. Creditors of a


corporation have the right to assume that so long as there are
outstanding debts and liabilities, the board of directors will
not use the assets of the corporation to purchase its own stock.

In the instant case, it was established that there were no


unrestricted retained earnings when the Turners filed their
Complaint. In a letter dated 20 August 2000, petitioner informed the
Turners that payment of their shares could only be made if it had
unrestricted earnings in its books to cover the same. Petitioner
reiterated this in a letter dated 2 January 2001 which further informed
the Turners that its Financial Statement for fiscal year 1999 shows that
its retained earnings ending December 31, 1999 was at a deficit in the
amount of P72,973,114.00, a matter which has not been disputed by
private respondents. Hence, in accordance with the second paragraph
of sec. 82, BP 68 supra, the Turners right to payment had not yet
accrued when they filed their Complaint on January 22, 2001, albeit
their appraisal right already existed.
In Philippine American General Insurance Co. Inc. vs. Sweet
Lines, Inc., the Supreme Court declared that:

Now, before an action can properly be commenced all the


essential elements of the cause of action must be in existence,
that is, the cause of action must be complete. All valid
conditions precedent to the institution of the particular action,
whether prescribed by statute, fixed by agreement of the parties
or implied by law must be performed or complied with before
commencing the action, unless the conduct of the adverse party
has been such as to prevent or waive performance or excuse
non-performance of the condition.

It bears restating that a right of action is the right to


presently enforce a cause of action, while a cause of action
consists of the operative facts which give rise to such right of
action.The right of action does not arise until the performance
of all conditions precedent to the action and may be taken away
by the running of the statute of limitations, through estoppel, or
by other circumstances which do not affect the cause of
action. Performance or fulfillment of all conditions precedent
Page 179 of 675

upon which a right of action depends must be sufficiently


alleged, considering that the burden of proof to show that a
party has a right of action is upon the person initiating the suit.

The Turners right of action arose only when petitioner had already
retained earnings in the amount of P11,975,490.00 on March 21, 2002;
such right of action was inexistent on January 22, 2001 when they filed
the Complaint.

In the doctrinal case of Surigao Mine Exploration Co. Inc., vs.


Harris, the Supreme Court ruled:

Subject to certain qualifications, and except as otherwise


provided by law, an action commenced before the cause of
action has accrued is prematurely brought and should be
dismissed. The fact that the cause of action accrues after the
action is commenced and while it is pending is of no moment. It
is a rule of law to which there is, perhaps, no exception, either
at law or in equity, that to recover at all there must be some
cause of action at the commencement of the suit. There are
reasons of public policy why there should be no needless haste
in bringing up litigation, and why people who are in no default
and against whom there is as yet no cause of action should not
be summoned before the public tribunals to answer complaints
which are groundless. An action prematurely brought is a
groundless suit. Unless the plaintiff has a valid and subsisting
cause of action at the time his action iscommenced, the defect
cannot be cured or remedied by the acquisition or accrual of
one while the action is pending, and a supplemental complaint
or an amendment setting up such after-accrued cause of action
is not permissible.

The afore-quoted ruling was reiterated in Young vs Court of


Appeals and Lao vs. Court of Appeals.

The Turners apprehension that their claim for payment may


prescribe if they wait for the petitioner to have unrestricted retained
Page 180 of 675

earnings is misplaced. It is the legal possibility of bringing the action


that determines the starting point for the computation of the period of
prescription. Stated otherwise, the prescriptive period is to be reckoned
from the accrual of their right of action.

Accordingly, We hold that public respondent exceeded its


jurisdiction when it entertained the herein Complaint and issued the
assailed Orders. Excess of jurisdiction is the state of being beyond or
outside the limits of jurisdiction, and as distinguished from the entire
absence of jurisdiction, means that the act although within the general
power of the judge, is not authorized and therefore void, with respect
to the particular case, because the conditions which authorize the
exercise of his general power in that particular case are wanting, and
hence, the judicial power is not in fact lawfully invoked.

We find no necessity to discuss the second ground raised in this


petition.

WHEREFORE, upon the premises, the petition


is GRANTED. The assailed Orders and the corresponding Writs of
Garnishment are NULLIFIED. Civil Case No. 02-104692 is hereby
ordered DISMISSED without prejudice to refiling by the private
respondents of the action for enforcement of their right to payment as
withdrawing stockholders.

SO ORDERED.

The petitioners now come to the Court for a review on certiorari of the CAs
decision, submitting that:

I.
THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF
LAW WHEN IT GRANTED THE PETITION FOR CERTIORARI
WHEN THE REGIONAL TRIAL COURT OF MANILA DID NOT
ACT BEYOND ITS JURISDICTION AMOUNTING TO LACK OF
JURISDICTION IN GRANTING THE MOTION FOR PARTIAL
SUMMARY JUDGMENT AND IN GRANTING THE MOTION FOR
IMMEDIATE EXECUTION OF JUDGMENT;
Page 181 of 675

II.
THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF
LAW WHEN IT ORDERED THE DISMISSAL OF THE CASE,
WHEN THE PETITION FOR CERTIORARI MERELY SOUGHT
THE ANNULMENT OF THE ORDER GRANTING THE MOTION
FOR PARTIAL SUMMARY JUDGMENT AND OF THE ORDER
GRANTING THE MOTION FOR IMMEDIATE EXECUTION OF
THE JUDGMENT;

III.
THE HONORABLE COURT OF APPEALS HAS DECIDED
QUESTIONS OF SUBSTANCE NOT THEREFORE DETERMINED
BY THIS HONORABLE COURT AND/OR DECIDED IT IN A WAY
NOT IN ACCORD WITH LAW OR WITH JURISPRUDENCE.

Ruling

The petition fails.

The CA correctly concluded that the RTC had exceeded its jurisdiction in
entertaining the petitioners complaint in Civil Case No. 01-086, and in rendering the
summary judgment and issuing writ of execution.

A.
Stockholders Right of Appraisal, In General

A stockholder who dissents from certain corporate actions has the right to
demand payment of the fair value of his or her shares. This right, known as the right
of appraisal, is expressly recognized in Section 81 of the Corporation Code, to wit:

Section 81. Instances of appraisal right. - Any stockholder of a


corporation shall have the right to dissent and demand payment of the
fair value of his shares in the following instances:
Page 182 of 675

1. In case any amendment to the articles of incorporation has the


effect of changing or restricting the rights of any stockholder or class
of shares, or of authorizing preferences in any respect superior to those
of outstanding shares of any class, or of extending or shortening the
term of corporate existence;

2. In case of sale, lease, exchange, transfer, mortgage, pledge or


other disposition of all or substantially all of the corporate property and
assets as provided in the Code; and

3. In case of merger or consolidation. (n)

Clearly, the right of appraisal may be exercised when there is a fundamental


change in the charter or articles of incorporation substantially prejudicing the rights
of the stockholders. It does not vest unless objectionable corporate action is
taken.[13] It serves the purpose of enabling the dissenting stockholder to have his
interests purchased and to retire from the corporation.[14]

Under the common law, there were originally conflicting views on whether a
corporation had the power to acquire or purchase its own stocks. In England, it was
held invalid for a corporation to purchase its issued stocks because such purchase
was an indirect method of reducing capital (which was statutorily restricted), aside
from being inconsistent with the privilege of limited liability to creditors. [15] Only a
few American jurisdictions adopted by decision or statute the strict English rule
forbidding a corporation from purchasing its own shares. In some American states
where the English rule used to be adopted, statutes granting authority to purchase
out of surplus funds were enacted, while in others, shares might be purchased even
out of capital provided the rights of creditors were not prejudiced.[16] The reason
underlying the limitation of share purchases sprang from the necessity of imposing
safeguards against the depletion by a corporation of its assets and against the
impairment of its capital needed for the protection of creditors.[17]

Now, however, a corporation can purchase its own shares, provided payment is
made out of surplus profits and the acquisition is for a legitimate corporate
Page 183 of 675

purpose.[18] In the Philippines, this new rule is embodied in Section 41 of


the Corporation Code, to wit:

Section 41. Power to acquire own shares. - A stock corporation


shall have the power to purchase or acquire its own shares for a
legitimate corporate purpose or purposes, including but not limited to
the following cases: Provided, That the corporation has unrestricted
retained earnings in its books to cover the shares to be purchased or
acquired:

1. To eliminate fractional shares arising out of stock dividends;

2. To collect or compromise an indebtedness to the corporation,


arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale; and

3. To pay dissenting or withdrawing stockholders entitled to


payment for their shares under the provisions of this Code. (n)

The Corporation Code defines how the right of appraisal is exercised, as well
as the implications of the right of appraisal, as follows:

1. The appraisal right is exercised by any stockholder who has voted


against the proposed corporate action by making a written demand
on the corporation within 30 days after the date on which the vote
was taken for the payment of the fair value of his shares. The failure
to make the demand within the period is deemed a waiver of the
appraisal right.[19]

2. If the withdrawing stockholder and the corporation cannot agree


on the fair value of the shares within a period of 60 days from the
date the stockholders approved the corporate action, the fair value
shall be determined and appraised by three disinterested persons,
one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings and
award of the majority of the appraisers shall be final, and the
corporation shall pay their award within 30 days after the award is
made. Upon payment by the corporation of the agreed or awarded
Page 184 of 675

price, the stockholder shall forthwith transfer his or her shares to the
corporation.[20]

3. All rights accruing to the withdrawing stockholders shares,


including voting and dividend rights, shall be suspended from the
time of demand for the payment of the fair value of the shares until
either the abandonment of the corporate action involved or the
purchase of the shares by the corporation, except the right of such
stockholder to receive payment of the fair value of the shares.[21]

4. Within 10 days after demanding payment for his or her shares, a


dissenting stockholder shall submit to the corporation the
certificates of stock representing his shares for notation thereon that
such shares are dissenting shares. A failure to do so shall, at the
option of the corporation, terminate his rights under this Title X of
the Corporation Code. If shares represented by the certificates
bearing such notation are transferred, and the certificates are
consequently canceled, the rights of the transferor as a dissenting
stockholder under this Title shall cease and the transferee shall have
all the rights of a regular stockholder; and all dividend distributions
that would have accrued on such shares shall be paid to the
transferee.[22]

5. If the proposed corporate action is implemented or effected, the


corporation shall pay to such stockholder, upon the surrender of the
certificates of stock representing his shares, the fair value thereof as
of the day prior to the date on which the vote was taken, excluding
any appreciation or depreciation in anticipation of such corporate
action.[23]

Notwithstanding the foregoing, no payment shall be made to any dissenting


stockholder unless the corporation has unrestricted retained earnings in its books to
cover the payment. In case the corporation has no available unrestricted retained
earnings in its books, Section 83 of the Corporation Code provides that if the
dissenting stockholder is not paid the value of his shares within 30 days after the
award, his voting and dividend rights shall immediately be restored.
Page 185 of 675

The trust fund doctrine backstops the requirement of unrestricted retained earnings
to fund the payment of the shares of stocks of the withdrawing stockholders. Under
the doctrine, the capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors, who are preferred
in the distribution of corporate assets.[24] The creditors of a corporation have the right
to assume that the board of directors will not use the assets of the corporation to
purchase its own stock for as long as the corporation has outstanding debts and
liabilities.[25] There can be no distribution of assets among the stockholders without
first paying corporate debts. Thus, any disposition of corporate funds and assets to
the prejudice of creditors is null and void.[26]

B.
Petitioners cause of action was premature

That the respondent had indisputably no unrestricted retained earnings in its books
at the time the petitioners commenced Civil Case No. 01-086 on January 22, 2001
proved that the respondents legal obligation to pay the value of the petitioners shares
did not yet arise. Thus, the CA did not err in holding that the petitioners had no cause
of action, and in ruling that the RTC did not validly render the partial summary
judgment.
A cause of action is the act or omission by which a party violates a right of
another.[27] The essential elements of a cause of action are: (a) the existence of a
legal right in favor of the plaintiff; (b) a correlative legal duty of the defendant to
respect such right; and (c) an act or omission by such defendant in violation of the
right of the plaintiff with a resulting injury or damage to the plaintiff for which the
latter may maintain an action for the recovery of relief from the
defendant.[28] Although the first two elements may exist, a cause of action arises only
upon the occurrence of the last element, giving the plaintiff the right to maintain an
action in court for recovery of damages or other appropriate relief.[29]
Section 1, Rule 2, of the Rules of Court requires that every ordinary civil action must
be based on a cause of action. Accordingly, Civil Case No. 01-086 was dismissible
from the beginning for being without any cause of action.
Page 186 of 675

The RTC concluded that the respondents obligation to pay had accrued by its having
the unrestricted retained earnings after the making of the demand by the petitioners.
It based its conclusion on the fact that the Corporation Code did not provide that the
unrestricted retained earnings must already exist at the time of the demand.

The RTCs construal of the Corporation Code was unsustainable, because


it did not take into account the petitioners lack of a cause of action against the
respondent. In order to give rise to any obligation to pay on the part of the
respondent, the petitioners should first make a valid demand that the respondent
refused to pay despite having unrestricted retained earnings. Otherwise, the
respondent could not be said to be guilty of any actionable omission that could
sustain their action to collect.

Neither did the subsequent existence of unrestricted retained earnings after the filing
of the complaint cure the lack of cause of action in Civil Case No. 01-086. The
petitioners right of action could only spring from an existing cause of action. Thus,
a complaint whose cause of action has not yet accrued cannot be cured by an
amended or supplemental pleading alleging the existence or accrual of a cause of
action during the pendency of the action.[30] For, only when there is an invasion of
primary rights, not before, does the adjective or remedial law become
operative.[31] Verily, a premature invocation of the courts intervention renders the
complaint without a cause of action and dismissible on such ground.[32] In
short, Civil Case No. 01-086, being a groundless suit, should be dismissed.
Even the fact that the respondent already had unrestricted retained earnings more
than sufficient to cover the petitioners claims on June 26, 2002 (when they
filed their motion for partial summary judgment) did not rectify the absence
of the cause of action at the time of the commencement of Civil Case No. 01-
086. The motion for partial summary judgment, being a mere application for
relief other than by a pleading,[33] was not the same as the complaint in Civil
Case No. 01-086. Thereby, the petitioners did not meet the requirement of
the Rules of Court that a cause of action must exist at the commencement of
an action, which is commenced by the filing of the original complaint in
court.[34]
Page 187 of 675

The petitioners claim that the respondents petition for certiorari sought only the
annulment of the assailed orders of the RTC (i.e., granting the motion for partial
summary judgment and the motion for immediate execution); hence, the CA had no
right to direct the dismissal of Civil Case No. 01-086.
The claim of the petitioners cannot stand.

Although the respondents petition for certiorari targeted only the RTCs orders
granting the motion for partial summary judgment and the motion for immediate
execution, the CAs directive for the dismissal of Civil Case No. 01-086 was not an
abuse of discretion, least of all grave, because such dismissal was the only proper
thing to be done under the circumstances. According to Surigao Mine Exploration
Co., Inc. v. Harris:[35]

Subject to certain qualification, and except as otherwise provided by


law, an action commenced before the cause of action has accrued is
prematurely brought and should be dismissed. The fact that the
cause of action accrues after the action is commenced and while the
case is pending is of no moment. It is a rule of law to which there is,
perhaps no exception, either in law or in equity, that to recover at all
there must be some cause of action at the commencement of the suit.
There are reasons of public policy why there should be no needless
haste in bringing up litigation, and why people who are in no default
and against whom there is as yet no cause of action should not be
summoned before the public tribunals to answer complaints which are
groundless. An action prematurely brought is a groundless suit. Unless
the plaintiff has a valid and subsisting cause of action at the time
his action is commenced, the defect cannot be cured or remedied
by the acquisition or accrual of one while the action is pending, and
a supplemental complaint or an amendment setting up such after-
accrued cause of action is not permissible.

Lastly, the petitioners argue that the respondents recourse of a special action
for certiorari was the wrong remedy, in view of the fact that the granting of
the motion for partial summary judgment constituted only an error of law correctible
by appeal, not of jurisdiction.
Page 188 of 675

The argument of the petitioners is baseless. The RTC was guilty of an error of
jurisdiction, for it exceeded its jurisdiction by taking cognizance of the complaint
that was not based on an existing cause of action.
WHEREFORE, the petition for review on certiorari is denied for lack of merit.

We affirm the decision promulgated on March 4, 2003 in C.A.-G.R. SP No.


74156 entitled Lorenzo Shipping Corporation v. Hon. Artemio S. Tipon, in his
capacity as Presiding Judge of Branch 46 of the Regional Trial Court of Manila, et
al.

Costs of suit to be paid by the petitioners.

SO ORDERED.

MAJORITY STOCKHOLDERS OF G.R. No. 165887


RUBY INDUSTRIAL
CORPORATION,
Petitioners,

- versus -

MIGUEL LIM, in his personal


capacity as Stockholder of Ruby
Industrial Corporation and
representing the MINORITY
STOCKHOLDERS OF RUBY
INDUSTRIAL CORPORATION
Page 189 of 675

and the MANAGEMENT


COMMITTEE OF RUBY
INDUSTRIAL CORPORATION,
Respondents.

x- - - - - - - - - - - - - - - - - - - - - - - - - -x

CHINA BANKING CORPORATION, G.R. No. 165929


Petitioner,
Present:

CARPIO MORALES, J.,


- versus - Chairperson,
BRION,
BERSAMIN,
ABAD,* and
MIGUEL LIM, in his personal VILLARAMA, JR., JJ.
capacity as a stockholder of Ruby
Industrial Corporation and Promulgated:
representing the MINORITY
STOCKHOLDERS OF RUBY June 6, 2011
INDUSTRIAL CORPORATION,
Respondents.

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

This case is brought to us on appeal for the fourth time, involving the same parties
and interests litigating on issues arising from rehabilitation proceedings initiated by
Ruby Industrial Corporation wayback in 1983.

Following is the factual backdrop of the present controversy, as culled from the
records and facts set forth in the ponencia of Chief Justice Reynato S. Puno in Ruby
Industrial Corporation v. Court of Appeals.[1]
Page 190 of 675

The Antecedents

Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass


manufacturing. Reeling from severe liquidity problems beginning in 1980, RUBY
filed on December 13, 1983 a petition for suspension of payments with the Securities
and Exchange Commission (SEC) docketed as SEC Case No. 2556. On December
20, 1983, the SEC issued an order declaring RUBY under suspension of payments
and enjoining the disposition of its properties pending hearing of the petition, except
insofar as necessary in its ordinary operations, and making payments outside of the
necessary or legitimate expenses of its business.

On August 10, 1984, the SEC Hearing Panel created the management committee
(MANCOM) for RUBY, composed of representatives from Allied Leasing and
Finance Corporation (ALFC), Philippine Bank of Communications (PBCOM),
China Banking Corporation (China Bank), Pilipinas Shell Petroleum Corporation
(Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang. The MANCOM
was tasked to perform the following functions: (1) undertake the management of
RUBY; (2) take custody and control over all existing assets and liabilities of RUBY;
(3) evaluate RUBYs existing assets and liabilities, earnings and operations; (4)
determine the best way to salvage and protect the interest of its investors and
creditors; and (5) study, review and evaluate the proposed rehabilitation plan for
RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC: the
BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu Kim
Giang, and the Alternative Plan of the minority stockholders represented by Miguel
Lim (Lim).

Under the BENHAR/RUBY Plan, Benhar International, Inc. (BENHAR) -- a


domestic corporation engaged in the importation and sale of vehicle spare parts
which is wholly owned by the Yu family and headed by Henry Yu, who is also a
director and majority stockholder of RUBY -- shall lend its P60 million credit line
in China Bank to RUBY, payable within ten (10) years. Moreover, BENHAR shall
purchase the credits of RUBYs creditors and mortgage RUBYs properties to obtain
credit facilities for RUBY. Upon approval of the rehabilitation plan, BENHAR shall
control and manage RUBYs operations. For its service, BENHAR shall receive a
management fee equivalent to 7.5% of RUBYs net sales.
Page 191 of 675

The BENHAR/RUBY Plan was opposed by 40% of the stockholders,


including Lim, a minority shareholder of RUBY. ALFC, the biggest unsecured
creditor of RUBY and chairman of the management committee, also objected to the
plan as it would transfer RUBYs assets beyond the reach and to the prejudice of its
unsecured creditors.

On the other hand, the Alternative Plan of RUBYs minority stockholders proposed
to: (1) pay all RUBYs creditors without securing any bank loan; (2) run and operate
RUBY without charging management fees; (3) buy-out the majority shares or sell
their shares to the majority stockholders; (4) rehabilitate RUBYs two plants; and (5)
secure a loan at 25% interest, as against the 28% interest charged in the loan under
the BENHAR/RUBY Plan.

Both plans were endorsed by the SEC to the MANCOM for evaluation.

On October 28, 1988, the SEC Hearing Panel approved the BENHAR/RUBY
Plan. The minority stockholders thru Lim appealed to the SEC En Banc which, in its
November 15, 1988 Order, enjoined the implementation of the BENHAR/RUBY
Plan. On December 20, 1988 after the expiration of the temporary restraining order
(TRO), the SEC En Banc granted the writ of preliminary injunction against the
enforcement of the BENHAR/RUBY Plan. BENHAR, Henry Yu, RUBY and Yu
Kim Giang questioned the issuance of the writ in their petition filed in the Court of
Appeals (CA), docketed as CA-G.R. SP No. 16798. The CA denied their
appeal.[2] Upon elevation to this Court (G.R. No. L-88311), we issued a minute
resolution dated February 28, 1990 denying the petition and upholding the
injunction against the implementation of the BENHAR/RUBY Plan.

Meanwhile, BENHAR paid off Far East Bank & Trust Company (FEBTC),
one of RUBYs secured creditors. By May 30, 1988, FEBTC had already executed a
deed of assignment of credit and mortgage rights in favor of BENHAR. BENHAR
likewise paid the other secured creditors who, in turn, assigned their rights in favor
of BENHAR.These acts were done by BENHAR despite the SECs TRO and
injunction and even before the SEC Hearing Panel approved the BENHAR/RUBY
Plan on October 28, 1988.

ALFC and Miguel Lim moved to nullify the deeds of assignment executed in
favor of BENHAR and cite the parties thereto in contempt for willful violation of
the December 20, 1983 SEC order enjoining RUBY from disposing its properties
Page 192 of 675

and making payments pending the hearing of its petition for suspension of
payments. They also charged that in paying off FEBTCs credits, FEBTC was given
undue preference over the other creditors of RUBY. Acting on the motions, the SEC
Hearing Panel nullified the deeds of assignment executed by RUBYs creditors in
favor of BENHAR and declared the parties thereto guilty of indirect
contempt. BENHAR and RUBY appealed to the SEC En Banc which denied their
appeal. BENHAR and RUBY joined by Henry Yu and Yu Kim Giang appealed to
the CA (CA-G.R. SP No. 18310). By Decision[3] dated August 29, 1990, the CA
affirmed the SEC ruling nullifying the deeds of assignment. The CA also declared
its decision final and executory as to RUBY and Yu Kim Giang for their failure to
file their pleadings within the reglementary period. By Resolution dated August 26,
1991 in G.R. No. 96675,[4] this Court affirmed the CAs decision.

Earlier, on May 29, 1990, after the SEC En Banc enjoined the implementation
of BENHAR/RUBY Plan, RUBY filed with the SEC En Banc an ex parte petition
to create a new management committee and to approve its revised rehabilitation plan
(Revised BENHAR/RUBY Plan). Under the revised plan, BENHAR shall
receive P34.068 million of the P60.437 Million credit facility to be extended to
RUBY, as reimbursement for BENHARs payment to some of RUBYs creditors. The
SEC En Banc directed RUBY to submit its revised rehabilitation plan to its creditors
for comment and approval while the petition for the creation of a new management
committee was remanded for further proceedings to the SEC Hearing Panel. The
Alternative Plan of RUBYs minority stockholders was also forwarded to the hearing
panel for evaluation.

On April 26, 1991, over ninety percent (90%) of RUBYs creditors objected to
the Revised BENHAR/RUBY Plan and the creation of a new management
committee.Instead, they endorsed the minority stockholders Alternative Plan. At the
hearing of the petition for the creation of a new management committee, three (3)
members of the original management committee (Lim, ALFC and Pilipinas Shell)
opposed the Revised BENHAR/RUBY Plan on grounds that: (1) it would legitimize
the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the
biggest creditor of RUBY; (2) it would put RUBYs assets beyond the reach of the
unsecured creditors and the minority stockholders; and (3) it was not approved by
RUBYs stockholders in a meeting called for the purpose.

Notwithstanding the objections of 90% of RUBYs creditors and three


members of the MANCOM, the SEC Hearing Panel approved on September 18,
Page 193 of 675

1991 the Revised BENHAR/RUBY Plan and dissolved the existing management
committee. It also created a new management committee and appointed BENHAR
as one of its members. In addition to the powers originally conferred to the
management committee under Presidential Decree (P.D.) No. 902-A, the new
management committee was tasked to oversee the implementation by the Board of
Directors of the revised rehabilitation plan for RUBY.

The original management committee (MANCOM), Lim and ALFC appealed to the
SEC En Banc which affirmed the approval of the Revised BENHAR/RUBY Plan
and the creation of a new management committee on July 30, 1993. To ensure that
the management of RUBY will not be controlled by any group, the SEC appointed
SEC lawyers Ruben C. Ladia and Teresita R. Siao as additional members of the new
management committee. Further, it declared that BENHARs membership in the new
management committee is subject to the condition that BENHAR will extend its
credit facilities to RUBY without using the latters assets as security or collateral.

Lim, ALFC and MANCOM moved for reconsideration while RUBY and BENHAR
asked the SEC to reconsider the portion of its Order prohibiting BENHAR from
utilizing RUBYs assets as collateral. On October 15, 1993, the SEC denied the
motion of Lim, ALFC and the original management committee but granted RUBY
and BENHARs motion and allowed BENHAR to use RUBYs assets as collateral for
loans, subject to the approval of the majority of all the members of the new
management committee. Lim, ALFC and MANCOM appealed to the CA (CA-G.R.
SP Nos. 32404, 32469 & 32483) which by Decision[5] dated March 31, 1995 set
aside the SECs approval of the Revised BENHAR/RUBY Plan and remanded the
case to the SEC for further proceedings. The CA ruled that the revised plan
circumvented its earlier decision (CA-G.R. SP No. 18310) nullifying the deeds of
assignment executed by RUBYs creditors in favor of BENHAR. Since under the
revised plan, BENHAR was to receive P34.068 Million of the P60.437 Million
credit facility to be extended to RUBY, as settlement for its advance payment to
RUBYs seven (7) secured creditors, such payments made by BENHAR under the
void Deeds of Assignment, in effect were recognized as payable to BENHAR under
the revised plan. The motion for reconsideration filed by BENHAR and RUBY was
likewise denied by the CA.[6]

Undaunted, RUBY and BENHAR filed a petition for review in this Court (G.R. Nos.
124185-87 entitled Ruby Industrial Corporation v. Court of Appeals) alleging that
the CA gravely abused its discretion in substituting its judgment for that of the SEC,
Page 194 of 675

and in allowing Lim, ALFC and MANCOM to file separate petitions prepared by
lawyers representing themselves as belonging to different firms. By
Decision[7] dated January 20, 1998, we sustained the CAs ruling that the Revised
BENHAR/RUBY Plan contained provisions which circumvented its final decision
in CA-G.R. SP No. 18310, nullifying the deeds of assignment of credits and
mortgages executed by RUBYs creditors in favor of BENHAR, as well as this Courts
Resolution in G.R. No. 96675, affirming the said CAs decision. We thus held:

Specifically, the Revised BENHAR/RUBY Plan considered as


valid the advance payments made by BENHAR in favor of some of
RUBYs creditors. The nullity of BENHARs unauthorized dealings
with RUBYs creditors is settled. The deeds of assignment between
BENHAR and RUBYs creditors had been categorically declared void
by the SEC Hearing Panel in two (2) orders issued on January 12,
1989 and March 15, 1989. x x x
xxxx

These orders were upheld by the SEC en banc and the Court of
Appeals. In CA-G.R. SP No. 18310, the Court of Appeals ruled as
follows:
xxxxxxxxx
1) x x x when the Deed of Assignment was executed
on May 30, 1988 by and between Ruby Industrial Corp.,
Benhar International, Inc., and FEBTC, the Rehabilitation
Plan proposed by petitioner Ruby Industrial Corp. for
Benhar International, Inc. to assume all petitioners
obligation has not been approved by the SEC. The
Rehabilitation Plan was not approved until October 28,
1988. There was a willful and blatant violation of the SEC
order dated December 20, 1983 on the part of petitioner
Ruby Industrial Corp., represented by Yu Kim Giang, by
Benhar International, Inc., represented by Henry Yu and
by FEBTC.

2) The magnitude and coverage of the transactions


involved were such that Yu Kim Giang and the other
signatories cannot feign ignorance or pretend lack of
Page 195 of 675

knowledge thereto in view of the fact that they were all


signatories to the transaction and privy to all the
negotiations leading to the questioned transactions. In
executing the Deeds of Assignment, the petitioners totally
disregarded the mandate contained in the SEC order not
to dispose the properties of Ruby Industrial Corp. in any
manner whatsoever pending the approval of the
Rehabilitation Plan and rendered illusory the SEC efforts
to rehabilitate the petitioner corporation to the best
interests of all the creditors.
3) The assignments were made without prior
approval of the Management Committee created by the
SEC in an Order dated August 10, 1984. Under Sec. 6, par.
d, sub. par. (2) of P.D. 902-A as amended by P.D. 1799,
the Management Committee, rehabilitation receiver,
board or body shall have the power to take custody and
control over all existing assets of such entities under
management notwithstanding any provision of law,
articles of incorporation or by-law to the contrary. The
SEC therefore has the power and authority, through a
Management Committee composed of petitioners
creditors or through itself directly, to declare all
assignment of assets of the petitioner Corporation declared
under suspension of payments, null and void, and to
conserve the same in order to effect a fair, equitable and
meaningful rehabilitation of the insolvent corporation.
4) x x x. The acts for which petitioners were held in
indirect contempt by the SEC arose from the failure or
willful refusal by petitioners to obey the lawful order of
the SEC not to dispose of any of its properties in any
manner whatsoever without authority or approval of the
SEC. The execution of the Deeds of Assignment tend to
defeat or obstruct the administration of justice. Such acts
are offenses against the SEC because they are calculated
to embarrass, hinder and obstruct the tribunal in the
administration of justice or lessen its authority.
Page 196 of 675

xxx
Even the SEC en banc, in its July 30, 1993 Order affirming the
approval of the Revised BENHAR/RUBY Plan, has acknowledged the
invalidity of the subject deeds of assignment.However, to justify its
approval of the plan and the appointment of BENHAR to the new
management committee, it gave the lame excuse that BENHAR became
RUBYs creditor for having paid RUBYs debts. x x x

xxxx

For its part, the Court of Appeals noted that the approved Revised
BENHAR/RUBY Plan gave undue preference to BENHAR. The
records, indeed, show that BENHARs offer to lend its credit facility in
favor of RUBY is conditioned upon the payment of the amount it
advanced to RUBYs creditors, x x x

xxxx
In fact, BENHAR shall receive P34.068 Million out of the
P60.437 Million credit facility to be extended to RUBY for the latters
rehabilitation.

Rehabilitation contemplates a continuance of corporate life and


activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency.When a distressed
company is placed under rehabilitation, the appointment of a
management committee follows to avoid collusion between the
previous management and creditors it might favor, to the prejudice of
the other creditors. All assets of a corporation under rehabilitation
receivership are held in trust for the equal benefit of all creditors
to preclude one from obtaining an advantage or preference over
another by the expediency of attachment, execution or otherwise. As
between the creditors, the key phrase is equality in equity. Once the
corporation threatened by bankruptcy is taken over by a receiver, all the
creditors ought to stand on equal footing. Not any one of them should
be paid ahead of the others. This is precisely the reason for
suspending all pending claims against the corporation under
receivership.[8] (Additional emphasis supplied.)
Page 197 of 675

Aside from the undue preference that would have been given to BENHAR under the
Revised BENHAR/RUBY Plan, we also found RUBYs dealing with BENHAR
highly irregular and its proposed financing scheme more costly and ultimately
prejudicial to RUBY. Thus:

Parenthetically, BENHAR is a domestic corporation engaged in


importing and selling vehicle spare parts with an authorized capital
stock of thirty million pesos. Yet, it offered to lend its credit facility in
the amount of sixty to eighty million pesos to RUBY. It is to be noted
that BENHAR is not a lending or financing corporation and lending its
credit facilities, worth more than double its authorized capitalization, is
not one of the powers granted to it under its Articles of
Incorporation. Significantly, Henry Yu, a director and a majority
stockholder of RUBY is, at the same time, a stockholder of BENHAR,
a corporation owned and controlled by his family. These circumstances
render the deals between BENHAR and RUBY highly irregular.

xxxx
Moreover, when RUBY initiated its petition for suspension of
payments with the SEC, BENHAR was not listed as one of RUBYs
creditors. BENHAR is a total stranger to RUBY. If at all, BENHAR
only served as a conduit of RUBY. As aptly stated in the challenged
Court of Appeals decision:

Benhars role in the Revised Benhar/Ruby Plan, as


envisioned by the majority stockholders, is to contract the
loan for Ruby and, serving the role of a financier, relend
the same to Ruby. Benhar is merely extending its credit
line facility with China Bank, under which the bank agrees
to advance funds to the company should the need
arise. This is unlikely a loan in which the entire amount is
made available to the borrower so that it can be used and
programmed for the benefit of the companys financial and
operational needs. Thus, it is actually China Bank which
will be the source of the funds to be relent to Ruby. Benhar
will not shell out a single centavo of its own funds. It is the
assets of Ruby which will be mortgaged in favor of
Benhar. Benhars participation will only make the
rehabilitation plan more costly and, because of the
Page 198 of 675

mortgage of its (Rubys) assets to a new creditor, will


create a situation which is worse than the present. x x
x

We need not say more.[9] (Additional emphasis supplied.)

After the finality of the above decision, the SEC set the case for further
proceedings.[10] On March 14, 2000, Bank of the Philippine Islands (BPI), one of
RUBYs secured creditors, filed a Motion to Vacate Suspension Order[11] on grounds
that there is no existing management committee and that no decision has been
rendered in the case for more than 16 years already, which is beyond the period
mandated by Sec. 3-8 of the Rules of Procedure on Corporate Recovery. RUBY filed
its opposition,[12] asserting that the MANCOM never relinquished its status as the duly
appointed management committee as it resisted the orders of the second and third
management committees subsequently created, which have been nullified by the CA
and later this Court. As to the applicability of the cited rule under the Rules on
Corporate Recovery, RUBY pointed out that this case was filed long before the
effectivity of said rules. It also pointed out that the undue delay in the approval of the
rehabilitation plan being due to the numerous appeals taken by the minority
stockholders and MANCOM to the CA and this Court, from the SEC approval of the
BENHAR/RUBY Plan. Since there have already been steps taken to finally settle
RUBYs obligations with its creditors, it was contended that the application of the
mandatory period under the cited provision would cause prejudice and injustice to
RUBY.

It appears that even earlier during the pendency of the appeals in the CA, BENHAR
and RUBY have performed other acts in pursuance of the BENHAR/RUBY Plan
approved by the SEC.

On September 1, 1996, Lim received a Notice of Stockholders Meeting scheduled


on September 3, 1996 signed by a certain Mr. Edgardo M. Magtalas, the Designated
Secretary of RUBY and stating the matters to be taken up in said meeting, which
include the extension of RUBYs corporate term for another twenty-five (25) years
and election of Directors.[13] At the scheduled stockholders meeting of September 3,
1996, Lim together with other minority stockholders, appeared in order to put on
record their objections on the validity of holding thereof and the matters to be taken
therein. Specifically, they questioned the percentage of stockholders present in the
Page 199 of 675

meeting which the majority claimed stood at 74.75% of the outstanding capital stock
of RUBY.

The aforesaid stockholders meeting was the subject of the Motion to Cite For
Contempt[14] and Supplement to Motion to Cite For Contempt[15] filed by Lim before
the CA where their petitions for review (CA-G.R. Nos. 32404, 32469 and 32483)
were then pending. Lim argued that the majority stockholders claimed to have
increased their shares to 74.75% by subscribing to the unissued shares of the
authorized capital stock (ACS). Lim pointed out that such move of the majority was
in implementation of the BENHAR/RUBY Plan which calls for capital infusion
of P11.814 Million representing the unissued and unsubscribed portion of the
present ACS of P23.7 Million, and the Revised BENHAR/RUBY Plan which
proposed an additional subscription of P30 Million. Since the implementation of
both majority plans have been enjoined by the SEC and CA, the calling of the special
stockholders meeting by the majority stockholders clearly violated the said
injunction orders. This circumstance certainly affects the determination of quorum,
the voting requirements for corporate term extension, as well as the election of
Directors pursuant to the July 30, 1993 Order and October 15, 1993 Resolution of
the SEC enjoining not only the implementation of the revised plan but also the doing
of any act that may render the appeal from the approval of the said plan moot and
academic.

The aforementioned capital infusion was taken up by RUBYs board of directors in


a special meeting[16] held on October 2, 1991 following the issuance by the SEC of
its Order dated September 18, 1991[17] approving the Revised BENHAR/RUBY
Plan and creating a new management committee to oversee its
implementation. During the said meeting, the board asserted its authority and
resolved to take over the management of RUBYs funds, properties and records and
to demand an accounting from the MANCOM which was ordered dissolved by the
SEC. The board thus resolved that:

The corporation be authorized to issue out of the unissued portion


of the authorized capital stocks of the corporation in the form of
common stocks 11.8134.00 [Million] after comparing this with the
audited financial statement prepared by SGV as of December 31, 1982,
to be subscribed and paid in full by the present stockholders in
proportion to their present stockholding in the corporation on staggered
basis starting October 28, December 27 then February 28 and April 28
as the last installment date at 25% for each period. It was also moved
Page 200 of 675

and seconded that should any of the stockholders fail to exercise their
rights to buy the number of shares they are qualified to buy by making
the first installment payment of 25% on or before October 13, 1991,
then the other stockholders may buy the same and that only when none
of the present stockholders are interested in the shares may there be a
resort to selling them by public auction.[18]

As reflected in the Minutes of the special board meeting, a representative of the


absent directors (Tan Chai, Tomas Lim, Miguel Lim and Yok Lim) came to submit
their letter addressed to the Chairman suggesting that said meeting be deferred until
the September 18, 1991 SEC Order becomes final and executory. The directors
present nevertheless proceeded with the meeting upon their belief that neither appeal
nor motion for reconsideration can stay the SEC order.[19]

The resolution to extend RUBYs corporate term, which was to expire on January 2,
1997, was approved during the September 3, 1996 stockholders meeting, as
recommended by the board of directors composed of Henry Yu (Chairman), James
Yu, David Yukimteng, Harry L. Yu, Yu Kim Giang, Mary L. Yu and Vivian L.
Yu. The board certified that said resolution was approved by stockholders
representing two-thirds (2/3) of RUBYs outstanding capital stock.[20] Per
Certification[21] dated August 31, 1995 issued by Yu Kim Giang as Executive Vice-
President of RUBY, the majority stockholders own 74.75% of RUBYs outstanding
capital stock as of October 27, 1991. The Amended Articles of Incorporation was
filed with the SEC on September 24, 1996.[22]

On March 17, 2000, Lim filed a Motion[23] informing the SEC of acts being
performed by BENHAR and RUBY through directors who were illegally elected,
despite the pendency of the appeal before this Court questioning the SEC approval
of the BENHAR/RUBY Plan and creation of a new management committee, and
after this Court had denied their motion for reconsideration of the January 20,
1998 decision in G.R. Nos. 124185-87. Lim reiterated that before the matter of
extension of corporate life can be passed upon by the stockholders, it is necessary to
determine the percentage ownership of the outstanding shares of the
corporation. The majority stockholders claimed that they have increased their
shareholdings from 59.828% to 74.75% as a result of the illegal and invalid
stockholders meeting on September 3, 1996. The additional subscription of shares
cannot be done as it implements the BENHAR/RUBY Plan against which an existing
injunction is still effective based on the SEC Order dated January 6, 1989, and which
Page 201 of 675

was struck down under the final decision of this Court in G.R. Nos. 124185-
87. Hence, the implementation of the new percentage stockholdings of the majority
stockholders and the calling of stockholders meeting and the subsequent resolution
approving the extension of corporate life of RUBY for another twenty-five (25)
years, were all done in violation of the decisions of the CA and this Court, and
without compliance with the legal requirements under the Corporation Code. There
being no valid extension of corporate term, RUBYs corporate life had legally ceased.
Consequently, Lim moved that the SEC: (1) declare as null and void the infusion of
additional capital made by the majority stockholders and restore the capital structure
of RUBY to its original structure prior to the time injunction was issued; and (2)
declare as null and void the resolution of the majority stockholders extending the
corporate life of RUBY for another twenty-five (25) years.

The MANCOM concurred with Lim and made a similar


[24]
manifestation/comment regarding the irregular and invalid capital infusion and
extension of RUBYs corporate term approved by stockholders representing only
60% of RUBYs outstanding capital stock. It further stated that the foregoing acts
were perpetrated by the majority stockholders without even consulting the
MANCOM, which technically stepped into the shoes of RUBYs board of
directors. Since RUBY was still under a state of suspension of payment at the time
the special stockholders meeting was called, all corporate acts should have been
made in consultation and close coordination with the MANCOM.

Lim likewise filed an Opposition[25] to BPIs Motion to Vacate Suspension Order,


asserting that the management committee originally created by the SEC continues
to control the corporate affairs and properties of RUBY. He also contended that the
SEC Rules of Procedure on Corporate Recovery cannot apply in this case which was
filed long before the effectivity of said rules.

On the other hand, RUBY filed its Opposition[26] to the Motion filed by Lim denying
the allegation of Lim that RUBYs corporate existence had ceased. RUBY claimed
that due notice were given to all stockholders of the October 2, 1991 special meeting
in which the infusion of additional capital was discussed. It further contended that
the CA decision setting aside the SEC orders approving the Revised
BENHAR/RUBY Plan, which was subsequently affirmed by this Court on January
20, 1998, did not nullify the resolution of RUBYs board of directors to issue the
previously unissued shares. The amendment of its articles of incorporation on the
Page 202 of 675

extension of RUBYs corporate term was duly submitted with and approved by the
SEC as per the Certification dated September 24, 1996.

The MANCOM also filed its Opposition[27] to BPIs Motion to Vacate


Suspension Order, stating that it has continuously performed its primary function of
preserving the assets of RUBY and undertaken the management of RUBYs day-to-
day affairs. It expressed belief that between chaotic foreclosure proceedings and
collection suits that would be triggered by the vacation of the suspension order and
an orderly settlement of creditors claims before the SEC, the latter path is the more
prudent and logical course of action. On April 28, 2000, it submitted to the court
copies of the minutes of meetings held from January 18, 1999 to December 1,
1999 in pursuance of its mandate to preserve the assets and administer the business
affairs of RUBY.[28]

On August 23, 2000, China Bank filed a Manifestation [29] echoing the
contentions of BPI that as there is no existing management committee and no
rehabilitation plan approved even after the 240-day period, warrants the application
of Sec. 4-9 of the SEC Rules of Procedure on Corporate Recovery such that the
petition is deemed ipso facto denied and dismissed. China Bank lamented that the
length of time that has lapsed, as well as the parties actuations, completely betrays a
genuine attempt to rehabilitate RUBYs moribund operations all to the dismay,
damage and prejudice of RUBYs creditors. It stressed that the proceedings cannot
be prolonged nor used as a ploy to defer indefinitely the payment of long overdue
obligations of RUBY to its creditors. With the case having been ipso
facto dismissed, there is no need of further action from the parties or an order from
the SEC. Consequently, RUBYs creditors may now take whatever legal action they
may deem appropriate to protect their rights including, but not limited to
extrajudicial foreclosure.

On September 11, 2000, the SEC granted Lims request for the issuance of
subpoena duces tecum/ad testificandum to Ms. Jocelyn Sta. Ana of BPI for the latter
to testify and bring all documents and records pertaining to RUBY.[30] Earlier, Lim
moved for a hearing to verify the information that China Bank and BPI had
separately executed deeds of assignment in favor of Greener Investment
Corporation, a company owned by Yu Kim Giang, one of RUBYs majority
stockholders.[31] Said hearing, however, did not push through in view of RUBYs
proposal for a compromise agreement.[32] Lim submitted his comments on the
Proposed Compromise Agreement, but there was no response from RUBY and the
Page 203 of 675

majority stockholders.[33] The minority stockholders likewise served a copy of the


revised Compromise Agreement to the majority stockholders.[34] Lim moved that the
case be assigned to a new Panel of Hearing Officers and the majority stockholders
be made to declare in a hearing whether they accept the counterproposals of the
minority in their draft Amicable Settlement in order that the case can proceed
immediately to liquidation.[35]

On January 25, 2001, the MANCOM filed with the SEC its Resolution
unanimously adopted on January 19, 2001 affirming that: (1) MANCOM was never
informed nor advised of the supposed capital infusion by the majority stockholders
in October 1991 and it never actually received any such additional subscription nor
signed any document attesting to or authorizing the said increase of RUBYs capital
stock or the extension of its corporate life; (2) MANCOM continuously recognizes
the 60%-40% ratio of shareholding profile between the majority and minority
stockholders, with the majority having 59.828% while the minority holds 40.172%
shareholding; (3) as there was no valid increase in the shareholding of the majority
and consequently no valid extension of corporate term, the liquidation of RUBY is
thus in order; (4) to date, the majority stockholders or Yu Kim Giang have not
complied with the December 22, 1989 SEC order for them to turn over the cash
including bank deposits, all other financial records and documents of RUBY
including transfer certificates of title over its real properties, and render an
accounting of all the money received by RUBY; and (5) pursuant to this Courts
ruling in G.R. No. 96675 dated August 26, 1991, the previous deeds of assignment
made in favor of BENHAR by Florence Damon, Philippine Bank of
Communications, Philippine Commercial International Bank, Philippine Trust
Company, PCI Leasing and Finance, Inc. and FEBTC, having been earlier declared
void by the SEC Hearing Panel, and the CA decision in CA-G.R. SP No. 18310
affirmed by this Court have no legal effect and are deemed void.[36]

On the other hand, Lim filed a Supplement (to Manifestation and Motion
dated January 18, 2001)[37] reiterating his pending motion filed on March 15, 2000
for the SEC to implement this Courts January 20, 1998 Decision in G.R. Nos.
124185-87 which states in part that [t]he SEC therefore has the power and authority,
directly to declare all assignment of assets of the petitioner Corporation declared
under suspension of payments, null and void, and to conserve the same in order to
effect a fair, equitable and meaningful rehabilitation of the insolvent
corporation. Lim contended that the SEC retains jurisdiction over pending
suspension of payment/rehabilitation cases filed as of June 30, 2000 until these are
Page 204 of 675

finally disposed, pursuant to Sec. 5.2 of the Securities Regulation Code (Republic
Act [R.A.] No. 8799). Considering that the Management Committee is intact, the
majority stockholders cannot act in an illegal manner with regard to RUBYs
assets. He thus concluded that the continued disobedience of the majority
stockholders to the orders and decisions of the SEC and CA, as affirmed by this
Court, have certainly rendered any additional assignments, such as the Deeds of
Assignment executed by BPI and China Bank with BENHAR, Henry Yu or conduits
of the majority stockholders, null and void.

The MANCOM manifested that it is adopting in toto the Manifestation and


Motion dated January 18, 2001 filed by Lim. It also moved for the SEC to conduct
further proceedings as directed by this Court. Considering that there is no chance at
all for the proposed rehabilitation of RUBY in light of strict implementation by
government authorities of environmental laws particularly on pollution control, and
MANCOMs assent to effect a liquidation, the MANCOM asserted that a hearing
should focus on the eventual liquidation of RUBY. It added that a dismissal under
the circumstances would be tantamount to a perceived shirking by the SEC of its
mandate to afford all creditors ample opportunity to recover on their respective
financial exposure with RUBY.[38]

On May 15, 2001, the MANCOM submitted copies of minutes of meetings


held from April 13, 2000 to December 29, 2000.[39]

On September 20, 2001, the SEC issued an Order directing the Management
Committee to submit a detailed report not mere minutes of meetings -- on the status
of the rehabilitation process and financial condition of RUBY, which should contain
a statement on the feasibility of the rehabilitation plan.[40] The MANCOM complied
with the said order on February 15, 2002.[41] The majority stockholders and RUBY
moved to dismiss the petition and strike from the records the
Compliance/Report. MANCOM filed its omnibus opposition to the said
motions. There was further exchange of pleadings by the parties on the matter of
whether the SEC should already dismiss the petition of RUBY as prayed for by the
majority stockholders and RUBY, or proceed with supervised liquidation of RUBY
as proposed by the MANCOM and minority stockholders.

The SECs Ruling


Page 205 of 675

On September 18, 2002, the SEC issued its Order[42] denying the petition for
suspension of payments, as follows:

WHEREFORE, in view of the foregoing, the Commission


hereby resolves to terminate the proceedings and DENY the instant
petition.
Accordingly, pursuant to Sec. 5-5 of the SECs Rules of
Procedure on Corporate Recovery, which provides:

Discharge of the Management Committee -- The


Management Committee shall be discharged and
dissolved under the following circumstances:

a. Whenever the Commission, on motion or motu


prop[r]io, has determined that the necessity for the
Management Committee no longer exists;
b. Upon the appointment of a liquidator under these
Rules;
c. By agreement of the parties;
d. Upon termination of the proceedings.

Upon its discharge and dissolution, the Management


Committee shall submit its final report and render an
accounting of its management within such reasonable time
as the Commission may allow.

the Management Committee is hereby DISSOLVED. It is


likewise ordered to:
(1) Make an inventory of the assets, funds and properties of the
petitioner;
(2) Turn-over the aforementioned assets, funds and properties to
the proper party(ies);
(3) Render an accounting of its management; and
(4) Submit its Final Report to the Commission.

The MANCOM is ordered to comply with the foregoing within


a non-extendible period of thirty (30) days from receipt of this
Order. Relative to any compensation owing to the MANCOM, it is left
to the determination of the parties concerned.
Page 206 of 675

No pronouncement as to costs.
SO ORDERED.[43]

The SEC declared that since its order declaring RUBY under a state of suspension
of payments was issued on December 20, 1983, the 180-day period provided in Sec.
4-9 of the Rules of Procedure on Corporate Recovery had long lapsed. Being a
remedial rule, said provision can be applied retroactively in this case. The SEC also
overruled the objections raised by the minority stockholders regarding the
questionable issuance of shares of stock by the majority stockholders and extension
of RUBYs corporate term, citing the presumption of regularity in the act of a
government entity which obtains upon the SECs approval of RUBYs amendment of
articles of incorporation. It pointed out that Lim raised the issue only in the year
2000. Moreover, the SEC found that notwithstanding his allegations of fraud, Lim
never proved the illegality of the additional infusion of the capitalization by RUBY
so as to warrant a finding that there was indeed an unlawful act.[44]

Lim, in his personal capacity and in representation of the minority stockholders of


RUBY, filed a petition for review with prayer for a temporary restraining order
and/or writ of preliminary injunction before the CA (CA-G.R. SP No. 73195)
assailing the SEC order dismissing the petition and dissolving the MANCOM.

Ruling of the CA

On May 26, 2004, the CA rendered its Decision,[45] the dispositive portion of which
states:

WHEREFORE, the Questioned Order dated 18 September 2002


issued by the Securities and Exchange Commission in SEC Case No.
2556 entitled In the Matter of the Petition for Suspension of Payments,
Ruby Industrial Corporation, Petitioner, is hereby SET ASIDE, and
consequently:

(1) the infusion of additional capital made by the majority


stockholders be declared null and void and restoring the capital
structure of Ruby to its original structure prior to the time the injunction
was issued, that is, majority stockholders 59.828% and the minority
Page 207 of 675

stockholders 40.172% of the authorized capital stock of Ruby Industrial


Corporation.

(2) the resolution of the majority stockholders, who represents


only 59.828% of the outstanding capital stock of Ruby, extending the
corporate life of Ruby for another twenty-five (25) years which was
made during the supposed stockholders meeting held on 03 September
1996 be declared null and void;

(3) implementing the invalidation of any and all illegal


assignments of credit/purchase of credits and the cancellation of
mortgages connected therewith made by the creditors of Ruby
Industrial Corporation during the effectivity of the suspension of
payments order including that of China Bank and BPI and to deliver to
MANCOM or the Liquidator all the original of the Deeds of
Assignments and the registered titles thereto and any other documents
related thereto; and order their unwinding and requiring the majority
stockholders to account for all illegal assignments (amounts, dates,
interests, etc. and present the original documents supporting the same);
and

(4) ordering the Securities and Exchange Commission to


supervise the liquidation of Ruby Industrial Corporation after the
foregoing steps shall have been undertaken.

SO ORDERED.[46]

According to the CA, the SEC erred in not finding that the October 2, 1991 meeting
held by RUBYs board of directors was illegal because the MANCOM was neither
involved nor consulted in the resolution approving the issuance of additional shares
of RUBY.

The CA further noted that the October 2, 1991 board meeting was conducted on the
basis of the September 18, 1991 order of the SEC Hearing Panel approving the
Revised BENHAR/RUBY Plan, which plan was set aside under this Courts January
20, 1998 Decision in G.R. Nos. 124185-87. The CA pointed out that records
confirmed the proposed infusion of additional capital for RUBYs rehabilitation,
approved during said meeting, as implementing the Revised BENHAR/RUBY
Plan. Necessarily then, such capital infusion is covered by the final injunction
Page 208 of 675

against the implementation of the revised plan. It must be recalled that this Court
affirmed the CAs ruling that the revised plan not only recognized the void deeds of
assignments entered into with some of RUBYs creditors in violation of the CAs
decision in CA-G.R. SP No. 18310, but also maintained a financing scheme which
will just make the rehabilitation plan more costly and create a worse situation for
RUBY.

On the supposed delay of the minority stockholders in raising the issue of the validity
of the infusion of additional capital effected by the board of directors, the CA held
that laches is inapplicable in this case. It noted that Lim sought relief while the case
is still pending before the SEC. If ever there was delay, the same is not fatal to the
cause of the minority stockholders.

The CA likewise faulted the SEC in relying on the presumption of regularity on the
matter of the extension of RUBYs corporate term through the filing of amended
articles of incorporation. In doing so, the CA totally disregarded the evidence which
rebutted said presumption, as demonstrated by Lim: (1) it was the board of directors
and not the stockholders which conducted the meeting without the approval of the
MANCOM; (2) there was no written waivers of the minority stockholders pre-
emptive rights and thus it was irregular to merely notify them of the board of
directors meeting and ask them to exercise their option; (3) there was an existing
permanent injunction against any additional capital infusion on the
BENHAR/RUBY Plan, while the CA and this Court both rejected the Revised
BENHAR/RUBY Plan; (4) there was no General Information Sheet reports made to
the SEC on the alleged capital infusion, as per certification by the SEC; (5) the
Certification stating the present percentage of majority shareholding, dated
December 21, 1993 and signed by Yu Kim Giang -- which was not sworn to before
a Notary Public -- was supposedly filed in 1996 with the SEC but it does not bear a
stamped date of receipt, and was only attached in a 2000 motion long after the
October 1991 board meeting; (6) said Certification was contradicted by the SEC list
of all stockholders of RUBY, in which the majority remained at 59.828% and the
minority shareholding at 40.172% as of October 27, 1991; (7) certain receipts for
the amount of P1.7 million was presented by the majority stockholders only in the
year 2000, long after Lim questioned the inclusion of extension of corporate term
in the Notice of Meeting when Lim filed before the CA a motion to cite for contempt
(CA-G.R. Nos. 32404, 32469 and 32483); and (8) this Courts decisions in the cases
elevated to it had recognized the 40% stockholding of the minority. Upon the
Page 209 of 675

foregoing grounds, the CA said that the SEC should have invalidated the resolution
extending the corporate term of RUBY for another twenty-five (25) years.

With the expiration of the RUBYs corporate term, the CA ruled that it was error for
the SEC in not commencing liquidation proceedings. As to the dismissal of RUBYs
petition for suspension of payments, the CA held that the SEC erred when it
retroactively applied Sec. 4-9 of the Rules of Procedure on Corporate Recovery.
Such retroactive application of procedural rules admits of exceptions, as when it
would impair vested rights or cause injustice. In this case, the CA emphasized that
the two decisions of this Court still have to be implemented by the SEC, but to date
the SEC has failed to unwound the illegal assignments and order the assignees to
surrender the Deeds of Assignment to the MANCOM.

On the issue of violation of the rule against forum shopping, the CA held that this is
not applicable because the parties in CA-G.R. SP No. 73169 (filed by MANCOM)
and CA-G.R. SP No. 73195 (filed by Lim) are not the same and they do not have the
same interest. This issue was in fact already resolved in G.R. Nos. 124185-
87 wherein this Court, citing Ramos, Sr. v. Court of Appeals[47] declared that private
respondents Lim, the unsecured creditors (ALFC) and MANCOM cannot be
considered to have engaged in forum shopping in filing separate petitions with the
CA as each have distinct rights to protect.

The CA also found that the belated submission of the special power of attorney
executed by the other minority stockholders representing 40.172% of RUBYs
ownership has no bearing to the continuation of the petition filed with the appellate
court. Moreover, since the petition is in the nature of a derivative suit, Lim clearly
can file the same not only in representation of the minority stockholders but also in
behalf of the corporation itself which is the real party in interest. Thus,
notwithstanding that Lims ownership in RUBY comprises only 1.4% of the
outstanding capital stock, as claimed by the majority stockholders, his petition may
not be dismissed on this ground.

The Consolidated Petitions

From the Decision of the CA, China Bank and the Majority Stockholder joined by
RUBY, filed separate petitions before this Court.
Page 210 of 675

In G.R. No. 165887, petitioners Majority Stockholders and RUBY raised the
following grounds for the reversal of the assailed decision and the reinstatement of
the SECs September 18, 2002 Order:

First Reason

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT


ACTED CONTRARY TO LAW AND PRECEDENTS WHEN IT
GAVE DUE COURSE TO, AND, THEREAFTER, SUSTAINED, A
FORMALLY AND SUBSTANTIALLY DEFECTIVE PETITION
FOR REVIEW.
Second Reason

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT


ACTED IN A MANNER AT WAR WITH ORDERLY PROCEDURE
AND APPLICABLE JURISPRUDENCE WHEN IT REVERSED
THE ORDER OF DISMISSAL OF THE SECURITIES AND
EXCHANGE COMMISSION AND SUBSTITUTED ITS
JUDGMENT FOR THAT OF THE LATTER IN THE
DETERMINATION OF ISSUES WELL WITHIN THE EXPERTISE
OF THE COMMISSION.
Third Reason
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT
ACTED IN GRAVE ABUSE OF ITS DISCRETION AND, IN FACT,
IN EXCESS OR LACK OF JURISDICTION -- WHEN IT
SUSTAINED COLLATERAL ATTACKS OF FINAL
ADJUDICATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION.[48]

On the other hand, petitioner China Bank in G.R. No. 165929 puts forth the argument
that the principle of stare decisis cannot be given effect in this case considering the
prevailing factual circumstances, as to do so would result in manifest injustice. It
contends that the reason for the declaration of nullity of the Deed of Assignment
pronounced more than a decade ago, has become legally inefficacious by its
obsolescence. The creditors of RUBY have the right to recover their credit. But
when the CA ordered the nullification of China Banks Deed of Assignment in favor
Page 211 of 675

of Greener Investment Corporation, it practically dashed its last hope for ever
recovering its credit.

China Bank is of the view that the CA overstretched the import of this
Courts January 20, 1998 decision in G.R. Nos. 124185-87 when the SEC was
ordered to conduct further proceedings, as to include the unwinding of the alleged
illegal assignment of credits. The rehabilitation of RUBY, if it still may be capable
of, is not made dependent on the unwinding by the SEC of the illegal assignments,
as the same concerns only the issue of who shall now become the creditors of RUBY,
and does not alter the fact that RUBY has hefty loan obligations and it has not
enough cash flow to pay for the same.

Deploring the principal parties penchant for prolonged litigation resulting


considerably in irreversible losses to RUBY, China Bank maintains that from the
report submitted by the MANCOM to the SEC, it can be clearly seen that no attempt
at rehabilitation whatsoever had been pursued. Given the current situation, China
Bank prays that the CA Decision be reversed and its Deed of Assignment in favor
of Greener Investment Corporation be recognized and given full legal effect.

In fine, main issues to be resolved are: (1) whether private respondents MANCOM
and Lim engaged in forum shopping when they filed separate petitions before the
CA assailing the September 18, 2002 SEC Order; (2) whether the defects in the
certification of non-forum shopping submitted by Lim warrant the dismissal of his
petition before the CA; (3) whether the CA was correct in reversing the SECs order
dismissing the petition for suspension of payment.

Our Ruling

The petitions have no merit.

On the charge of forum shopping, we have already ruled on the matter in G.R. Nos.
124185-87. Thus:

We hold that private respondents are not guilty of forum-


shopping. In Ramos, Sr. v. Court of Appeals, we ruled:
The private respondents can be considered to have
engaged in forum shopping if all of them, acting as one
Page 212 of 675

group, filed identical special civil actions in the Court of


Appeals and in this Court. There must be identity of
parties or interests represented, rights asserted and relief
sought in different tribunals. In the case at bar, two groups
of private respondents appear to have acted independently
of each other when they sought relief from the appellate
court. Both groups sought relief from the same tribunal.

It would not matter even if there are several


divisions in the Court of Appeals. The adverse party can
always ask for the consolidation of the two cases. x x x
In the case at bar, private respondents represent different groups
with different interests the minority stockholders group, represented by
private respondent Lim; the unsecured creditors group, Allied Leasing
& Finance Corporation; and the old management group. Each group
has distinct rights to protect. In line with our ruling in Ramos, the cases
filed by private respondents should be consolidated. In fact, BENHAR
and RUBY did just that in their urgent motions filed on December 1,
1993 and December 6, 1993, respectively, they prayed for the
consolidation of the cases before the Court of Appeals.[49]

In the present case, no consolidation of CA-G.R. SP Nos. 73169 (filed by


MANCOM) which was earlier assigned to the Thirteenth Division and CA-G.R. SP
No. 73195 (filed by Lim) decided by the Second Division, took place. In their
Comment filed before CA-G.R. SP No. 73169, the Majority Stockholders and
RUBY (private respondents therein) prayed for the dismissal of said case arguing
that MANCOM, of which Lim is a member, circumvented the proscription against
forum shopping. The CAs Thirteenth Division, however, disagreed with private
respondents and granted the motion to withdraw petition filed by MANCOM which
manifested that the Second Division in CA-G.R. SP No. 73195 by Decision dated
May 26, 2004 had granted the reliefs similar to those prayed for in their petition, said
decision being binding on MANCOM which was also impleaded in said case (CA-
G.R. SP No. 73195). The Thirteenth Division also cited our pronouncement in G.R.
Nos. 124185-87 to the effect that there was no violation on the rule on forum
shopping because MANCOM and Lim or the minority shareholders of RUBY
represent different interests.[50]
Page 213 of 675

As to the alleged defects in the certificate of non-forum shopping submitted by Lim,


we find no error committed by the CA in holding that the belated submission of a
special power of attorney executed in Lims favor by the minority stockholders has
no bearing to the continuation of the case as supported by ample jurisprudence. To
appreciate the liberal stance adopted by the CA, one must take into account the
previous history of the petitions for review before the CA involving the
SEC September 18, 2002 Order. It was actually the third time that Lim and/or
MANCOM have challenged certain acts perpetrated by the majority stockholders
which are prejudicial to RUBY, such as the execution of deeds of assignment during
the effectivity of the suspension order in pursuit of two rehabilitation plans submitted
by them together with BENHAR. The assignment of RUBYs credits to BENHAR
gave the secured creditors undue advantage over RUBYs prime properties and put
these assets beyond the reach of the unsecured creditors. Each time they go to court,
Lim and MANCOM essentially advance the interest of the corporation itself. They
have consistently taken the position that RUBYs assets should be preserved for the
equal benefit of all its creditors, and vigorously resisted any attempt of the
controlling stockholders to favor any or some of its creditors by entering into
questionable deals or financing schemes under two BENHAR/RUBY Plans. Viewed
in this light, the CA was therefore correct in recognizing Lims right to institute a
stockholders action in which the real party in interest is the corporation itself.

A derivative action is a suit by a shareholder to enforce a corporate cause of


action.[51] It is a remedy designed by equity and has been the principal defense of the
minority shareholders against abuses by the majority.[52] For this purpose, it is
enough that a member or a minority of stockholders file a derivative suit for and in
behalf of a corporation.[53] An individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds stock in order to protect
or vindicate corporate rights, whenever officials of the corporation refuse to sue or
are the ones to be sued or hold the control of the corporation. In such actions, the
suing stockholder is regarded as the nominal party, with the corporation as the party
in interest.[54]

Now, on the third and substantive issue concerning the SECs dismissal of RUBYs
petition for suspension of payment.

The SEC based its action on Sec. 4-9 of the Rules of Procedure on Corporate
Recovery,[55] which provides:
Page 214 of 675

SEC. 4-9. Period of Suspension Order. The suspension order


shall be effective for a period of sixty (60) days from the date of its
issuance. The order shall be automatically vacated upon the lapse of the
sixty-day period unless extended by the Commission. Upon motion, the
Commission may grant an extension thereof for a period of not more
than sixty (60) days in each application if the Commission is satisfied
that the debtor and its officers have been acting in good faith and with
due diligence, and that the debtor would likely be able to make a viable
rehabilitation plan. After the lapse of one hundred and eighty (180)
days from the issuance of the suspension order, no extension of the said
order shall be granted by the Commission if opposed in writing by a
majority of any class of creditors. The Commission may grant an
extension beyond one hundred eighty (180) days only if it appears by
convincing evidence that there is a good chance for the successful
rehabilitation of the debtor and the opposition thereto by the creditor
appears manifestly unreasonable.
In any event, the petition is deemed ipso facto denied and
dismissed if no Rehabilitation Plan was approved by the
Commission upon the lapse of the order or the last extension
thereof. In such case, the debtor shall come under the dissolution
and liquidation proceedings of Rule V of these Rules. (Emphasis
supplied.)

According to the SEC, even if the 180 days maximum period of suspension order is
counted from the finality of this Courts decision in G.R. Nos. 124185-87 in
December 1998, still this case had gone beyond the period mandated in the Rules
for a corporation under suspension of payment to have a rehabilitation plan approved
by the Commission.

While it is true that the Rules of Procedure on Corporate Recovery authorizes the
dismissal of a petition for suspension of payment where there is no rehabilitation
plan approved within the maximum period of the suspension order, it must be
recalled that there was in fact not one, but two rehabilitation
plans (BENHAR/RUBY Plan and Revised BENHAR/RUBY Plan) submitted by the
majority stockholders which were approved by the SEC. The implementation of the
first plan was enjoined when it was seriously challenged in the courts by the minority
stockholders through Lim. The second revised plan superseded the first plan, but
Page 215 of 675

eventually nullified by the CA and the CA decision declaring it void was affirmed
by this Court in G.R. Nos. 124185-87. Given this factual milieu, the automatic
application of the lifting of the suspension order as interpreted by the SEC in
its September 18, 2002 Order would be unfair and highly prejudicial to the
financially distressed corporation.

Moreover, records reveal that the delay in the proceedings after the case was
set for hearing following this Courts final judgment in G.R. Nos. 124185-87, was
not due to any fault or neglect on the part of MANCOM or the minority stockholders.
The idea propounded by the petitioners majority stockholders that this case is about
a minority in a corporation holding hostage the majority indefinitely by simple
assertion that the formers rights have been transgressed by the latter is, downright
misleading.

First, the SEC did not even mention in its September 18, 2002 Order that when
this Court remanded to it the case for further proceedings, there remained only the
Alternative Plan of RUBYs minority stockholders which had earlier been forwarded
to the SEC Hearing Panel. With the CA Decision setting aside the SEC approval of
the Revised BENHAR/RUBY Plan, as affirmed by this Court, it behooves on the
SEC to recognize the fact that the Alternative Plan was endorsed by 90% of the
RUBYs creditors who had objected to the Revised BENHAR/RUBY Plan. Yet, not
a single step was taken by the SEC to address those findings and conclusions made
by the CA and this Court on the highly disadvantageous and onerous provisions of
the Revised BENHAR/RUBY Plan.

Moreover, the SEC failed to act on motions filed by Lim and MANCOM to
implement this Courts January 20, 1998 Decision in G.R. Nos. 124185-87, by
declaring all deeds of assignment with BENHAR and/or the conduits of Henry Yu
of no force and legal effect, which of course necessitates the surrender by the
concerned creditors of those void deeds of assignment. Petitioner China Bank
dismisses it as unnecessary and immaterial to the continued inability of RUBY to
settle its long overdue debts. However, the CA said that the foregoing acts should
have been done by the SEC for proper documentation and orderly settlement after
proper accounting of the assignment transactions. The appellate court then
concluded that dismissal of the petition under Sec. 4-9 of the Rules of Procedure on
Corporate Recovery would impair the vested rights of the minority stockholders
under this Courts decision invalidating the aforesaid deeds of assignment, thus:
Page 216 of 675

We agree with the observations of the petition that if the illegal


assignments not having been unwound and the mortgages not canceled,
the majority, their alter ego, and/or cohorts will claim to be secured
creditors and freely collect extra-judicially the obligations covered by
the illegal assignments. Ruby has very little money compared to the
P200 Million probable liability to the illegal assignees as unilaterally
stated by Ruby without audit (previously merely totaled to P34 Million
in 1998 as stated in the revised rehabilitation plan). Foreclosure of the
mortgages by the illegal assignees will follow; Ruby will lose all its
prime properties; there will be no assets left for unsecured creditors;
and there will be no residual P600 Million assets to divide.[56]

Evidently, the minority stockholders and MANCOM had already foreseen the
impossibility of implementing a viable rehabilitation plan if the illegal assignments
made by its creditors with BENHAR and the majority stockholders, and
subsequently, with conduits of RUBY or Henry Yu, are not properly unwound and
those directors responsible for the void transactions not required to make a full
accounting. Contrary to petitioner China Banks insinuation that the minority
stockholders merely want to prolong the litigation to the great prejudice and damage
to RUBYs creditors, MANCOM and Lim had determined and moved for SEC-
supervised liquidation proceedings as the more prudent course of action for an
orderly and equitable settlement of RUBYs liabilities.

Records likewise revealed that the SEC chose to keep silent and failed to assist the
MANCOM and minority stockholders in their efforts to demand compliance from
the majority stockholders or Yu Kim Giang (who headed the first MANCOM) with
the December 22, 1989 Order directing them to turn over the cash, financial records
and documents of RUBY, including certificates of title over RUBYs real properties,
and render an accounting of all moneys received and payments made by RUBY. On
January 18, 2002, the MANCOM even filed a Motion[57] to require Yu Kim Giang
to render report/accounting of RUBY from 1983 to the 1st quarter of 1990, stating
that despite a commitment from Mr. Giang, he has seemingly delayed his
compliance, hence frustrating the desire of MANCOM to submit a comprehensive
and complete report for the whole period of 1983 up to the present. To underscore
the importance of making the said records available for scrutiny of the SEC and
MANCOM, Lim manifested before the SEC that--
Page 217 of 675

Indeed, the majority is actually unwilling (and not merely


unable) to submit such records because these will show, among others:

(1) The majority to minority ratio in the corporate ownership is


59.828% :40.172%;

(2) The actual amounts of the bank loans paid off by Benhar
International[,] Inc. and/or Henry Yu would be very low;

(3) The illegal payment of the bank loans and illegal assignments
of the mortgages to Benhar/Henry Yu are contrary to the
Honorable Commissions Order of 20 December 1983 for
suspension of payments;

(4) The earnings of the corporation from 1983 to 1989 amounted


to millions and cannot be accounted for by the majority and
the first Mancom;

(5) The money may have been spent to pay off some of the loans
to the bank but Benhar and Henry Yu fraudulently claim
credit therefor.[58]

It must be noted that MANCOM had rejected the two rehabilitation plans
proposed by BENHAR and the majority stockholders. In shifting the blame to the
MANCOM and minority stockholders for the delay in the approval of a viable
rehabilitation plan, the SEC apparently overlooked that from the time the SEC
approved the Revised BENHAR/RUBY Plan and dissolved the MANCOM, the
majority stockholders has denied MANCOM access to corporate papers, documents
evidencing the amounts actually paid to creditor banks/assignors, financial
statements and titles over RUBYs real properties.

Although the SEC granted MANCOM and Lims request for a hearing and direct a
representative from BPI to bring all documents relative to the assignment of RUBYs
credit, said hearing did not materialize after the majority stockholders proposed a
compromise agreement with the minority stockholders. But as it turned out, this
development only caused further delay because the majority stockholders were
unwilling to turn over documents, funds and properties in their possession, and
would neither make a full accounting or disclosure of RUBYs transactions,
especially the actual amounts paid and rates of interest on the loan assignments. In
Page 218 of 675

this state of things, the MANCOM and minority stockholders resolved that the more
reasonable and practical option is to move for a SEC-supervised liquidation
proceedings.

The other ground invoked by Lim and MANCOM for the propriety of liquidation is
the expiration of RUBYs corporate term. The SEC, however, held that the filing of
the amendment of articles of incorporation by RUBY in 1996 complied with all the
legal requisites and hence the presumption of regularity stands. Records show that
the validity of the infusion of additional capital which resulted in the alleged increase
in the shareholdings of petitioners majority stockholders in October 1991 was
questioned by MANCOM and Lim even before the majority stockholders filed their
motion to dismiss in the year 2000.

A stock corporation is expressly granted the power to issue or sell stocks.[59] The
power to issue shares of stock in a corporation is lodged in the board of directors and
no stockholders meeting is required to consider it because additional issuances of
shares of stock does not need approval of the stockholders.[60] What is only required
is the board resolution approving the additional issuance of shares. The corporation
shall also file the necessary application with the SEC to exempt these from the
registration requirements under the Revised Securities Act (now the Securities
Regulation Code).

The new management committee created pursuant to SEC Order dated September
18, 1991 apparently had no participation in the October 2, 1991 board resolution
approving the issuance of additional shares. The move was part of the boards
assertion of control over the management in RUBY following the approval of the
Revised BENHAR/RUBY Plan.The minority stockholders registered their objection
during the said meeting by asking the board to defer action as the SEC September
18, 1991 Order was still on appeal with the SEC En Banc. When the SEC En
Banc denied their appeal and motion for reconsideration under its July 30,
1993 and October 15, 1993 orders, Lim, MANCOM and ALFC filed petitions for
review with the CA which set aside the said orders. As already mentioned, this Court
affirmed the CA ruling in G.R. Nos. 124185-87.

Contrary to the assertion of petitioners majority stockholders, our decision in G.R.


Nos. 124185-87 nullified the deeds of assignment not solely on the ground of
violation of the injunction orders issued by the SEC and CA. As earlier mentioned,
we affirmed the CAs finding that the re-lending scheme under the Revised
Page 219 of 675

BENHAR/RUBY Plan will not only make rehabilitation more costly for RUBY, but
also worsen its financial condition because of the mortgage of its assets to a new
creditor. To better illumine this point, we quote from the CA decision in CA-G.R.
SP Nos. 32404, 32469 and 32483 comparing the provisions of the rehabilitation
proposals submitted by the majority stockholders (Revised BENHAR/RUBY Plan)
and the minority stockholders (Alternative Plan):

there is no need for Benhar to act as financier, as Ruby itself can


very well secure such credit accommodation using its assets as
collateral. Verily, Benhars pretext at magnanimity is deception of the
highest order considering that: (1) as embodied in the heading Sources
and Uses of Funds in the Revised Benhar/Ruby Plan, the P80-Million
loan/credit facility to be extended by Benhar will be used to
pay P60.437-Million loans of Ruby. Of the P60.437-Million, P34.068-
Million will be paid to Benhar as payment for the amounts it paid in
consideration of the nullified assignments; (2) The Deed of Assignment
of Credit Facility will be executed by Benhar in favor of Ruby only
upon payment of Ruby of such amount already advanced by Benhar,
i.e. the P34.068-Million credit assigned to Benhar by the seven (7)
secured creditors.

The Revised Benhar/Ruby Plan, in fact, gives Benhar undue


preference on the matter of repayment. Under the said plan, the
creditors of Ruby will be paid in accordance with the following
schedules:

Secured Creditors P17.022M To be paid in cash


China Banking Corp. with 12% interest
BPI p.a.
Philippine Orient

Unsecured Creditors P 9.347M To be paid in cash


Allied Leasing interest-f[r]ee
Filcor Finance
Benhar
For having paid P34.068M To be paid in cash
Ruby obligations with interest
to 7 creditors charge
Page 220 of 675

Trade/Other P2.871M Totalling P8.614M


Creditors (p.a. for 3 years) to be paid in 3-
year installment,
interest-free

(Rollo, CA-G.R. SP No. 32404, p. 727)


Needless to state, the foregoing payment schedules as
embodied in the said plan which gives Benhar undue advantage
over the other creditors goes against the very essence of
rehabilitation, which requires that no creditor should be preferred
over the other. Indeed, a comparison of the salient features of the
Revised Benhar/Ruby Plan and the Alternative Plan will readily show
just how stacked in favor of Benhar are the provisions of the former
plan:

Benhar/Ruby Plan Alternative Plan


1. Benhar plays a major 1. The original
role. It will be creditors are the
paid P34.068M out ones recognized.
of P60.437 M total The amount
amount due to creditors payable is lower
but not explained as to because interests
how arrived at. are not
capitalized.
2. Benhar will not assign the 2. Direct credit of
credit facility of P80M P80M
unless the P34.068M loan and will be
above stated is paid. borrowed from
the bank(s) like
Allied, UCPB,
Metrobank or
Equitable Bank or
even China Bank.

3. The main assets are to 3. Mortgaged


bemortgaged to the to bank(s)directly.
Page 221 of 675

creditor-assignor of
Benhar and if the illegal
assignments are
recognized, then Benhar
shall have to be
recognized as
mortgagee even when it
is a disqualified
creditor and/or
mortgagee.
4. Start up cost P16,880 and 4. Plant B = P25,640
based on 1988 figures
and projections. Year IV
estimated P40. M

Plant A = 22.40
Year V
estimated P30. M

5. Rehabilitation only of 5. Rehabilitation of


Plant B. both plants.
6. Recognition of Benhar re- 6. None
lender/financier.

7. Because of the SEC Order 7. Pilipinas Shell


he got an MC seat and representative be
and the Pilipinas Shell retained.
representative of trade
creditors was retained.

8. Credit facility is being 8. Credit facility


assigned or re-lent by directly to Ruby.
Benhar.

9. Authorized Benhar to 9. None going to the


mortgage assets of Ruby minority but to
itself. Only remaining actual lenders.
unencumbered asset is
Page 222 of 675

one (1) real


property.Two (2) prime
properties already
encumbered to Assignor
of Benhar.
10. Capacity of only one (1) 10. Capacity of two
plant stated at 72% (2) plants
(overrated) progressive to
75% or 80% with
purchase of new
machines.
11. Projection figures based 11. Minority RP can
on May, 1990 forex be updated at
exchange rate. Cost of current foreign
importation and other exchange rate.
local supplier currently
cannot be met.

12. Market and economic 12. Taken into


slow down not taken consideration so
into consideration. will upgrade to
meet competition.

13. Discriminatory to 13. Not


creditors Benhar- discriminatory.
capitalized with
undisclosed rates of
interest.

14. Original Figures of 14. Original figures


illegally assigned loans will be
from FEBTC, PCIB, used original
PTC which totaled figures plans 12%
to P11,419,036.87 but interest only.
now entered
as P21,378,002.71.The
interest is undisclosed
and may have been
Page 223 of 675

capitalized. Figures for


the other four (4)
secured lenders not
available individually.
Total of seven (7)
secured lenders given
as P34.068 M.

15. Interest is 28% with 15. Interest is 25%


Benhar as conduit. payable to the
bank. This is still
subject to current
market rates to be
negotiated by the
minority.
16. Call on unissued shares 15. Additional
for P11.814 M and if subscription
minority will take up of P16M within 6
their pre-emptive rights months by the
and dilute minority minority
shareholdings. stockholders.
x x x x[61]

Prior to the September 18, 1991 Order approving the Revised BENHAR/RUBY
Plan and dissolving the MANCOM, majority of RUBYs creditors (90%) have
already withdrawn their support to the revised plan and manifested that they were
only lately informed about another plan submitted by the minority stockholders.
Hence, these creditors wrote individual letters to the SEC Hearing Panel expressing
their agreement with and endorsement of the Alternative Plan of the minority
stockholders.[62]

The Revised BENHAR/RUBY Plan had proposed the calling for subscription
of unissued shares through a Board Resolution from the P11.814 million of
the P23.7 million ACS in order to allow the long overdue program of the REHAB
Program. RUBY will offer for subscription 118,140 shares of stocks at par value
of P100 each to all stockholders on record, payable within 15 days, or within a
reasonable period from SEC approval of the revised plan.[63] This was implemented
Page 224 of 675

by the October 2, 1991 meeting of the Board of Directors led by Yu Kim Giang. The
minority directors claimed they were not notified of said board meeting. At any rate,
the CA decision nullifying the Revised BENHAR/RUBY Plan was affirmed by this
Court on January 20, 1998. Hence, the legitimate concerns of the minority
stockholders and MANCOM who objected to the capital infusion which resulted in
the dilution of their shareholdings, the expiration of RUBYs corporate term and the
pending incidents on the void deeds of assignment of credit all these should have
been duly considered and acted upon by the SEC when the case was remanded to it
for further proceedings. With the final rejection of the courts of the Revised
BENHAR/RUBY Plan, it was grave error for the SEC not to act decisively on the
motions filed by the minority stockholders who have maintained that the issuance of
additional shares did not help improve the situation of RUBY except to stifle the
opposition coming from the MANCOM and minority stockholders by diluting the
latters shareholdings. Worse, the SEC ignored the evidence adduced by the minority
stockholders indicating that the correct amount of subscription of additional shares
was not paid by the majority stockholders and that SEC official records still reflect
the 60%-40% percentage of ownership of RUBY.

The SEC remained indifferent to the reliefs sought by the minority


stockholders, saying that the issue of the validity of the additional capital infusion
was belatedly raised. Even assuming the October 2, 1991 board meeting indeed took
place, the SEC did nothing to ascertain whether indeed, as the minority claimed: (1)
the minority stockholders were not given notice as required and reasonable time to
exercise their pre-emptive rights; and (2) the capital infusion was not for the purpose
of rehabilitation but a mere ploy to divest the minority stockholders of their 40.172%
shareholding and reduce it to a mere 25.25%.

The foregoing matters, along with the persistent refusal of the majority
stockholders, led by Yu Kim Giang, to give a full accounting of their transactions
involving RUBYs credits and properties, were extensively argued by the minority
stockholders in their opposition to the motions to dismiss/vacate suspension order
filed by the majority stockholders and BPI, as follows:
Their receipts only show supposed payment by the majority of a
total of P1,759,150.00 out of the correct amount of P7,068,079.92.00
(sic) (59.828% of P11.814 million required capital infusion under the
MRP and RRP) which should have been the amount paid by them under
the RRP which requires full payment. Thus, they sought to attain a
74.75% equity from a 59.828% original equity by playing more tricks
Page 225 of 675

and stating that, under the general rule, they are supposedly allowed to
pay-up only 25% of their subscription. Unfortunately for them, in a
rehabilitation supervised by the SEC and with an existing Mancom, the
general rule does not apply. What is stated in the rehabilitation plan
must be strictly followed provided the rehabilitation plan has been
finally approved.

It must be remembered that in October 2 to 17, 1991, the amounts


owed by Ruby to the banks who illegally assigned their loans/credit was
stated at P34 Million. Operations needed another P20 Million plus. A
capital infusion of P1,759,150.00 was so miniscule and clearly not for
rehabilitation but was intended to deprive the minority of its blocking
position and property rights since distribution after liquidation is based
on the percentage of stockholdings. It is not only unfair, inequitable
and not meaningful it is clearly dishonest.
xxxx

Assuming arguendo that the Board of Directors could act


independently and this did not violate any injunction, if the capital
infusion was actually made, the Board of Directors had the duty to
report this to the Mancom because they would then fall under existing
assets and would be part of the evaluation of the proposed RRP,
necessary for management and in the overall plan of
rehabilitation. Nothing of this kind happened and the belated proof
cannot correct this situation.

xxxx
It is not true that there is benevolence on the part of the majority
when they maneuvered the illegal assignments and paid the banks. The
loan obligations remain as accounts payable of Ruby and have even
been bloated to gigantic proportions and yet the SEC does not even ask
them to account how much these obligations are now and the majority
should have reported these to the Mancom, but the majority has
not. These anomalous situations have been made to continue long
enough and, we pray, should be addressed by the Honorable
Commission.
xxxx
Page 226 of 675

The SEC must understand that, being head of the first Mancom,
YU KIM GIANG had the same obligation to render a report to the SEC
as the present Mancom now. To single out the present Mancom to do
this when a complete report cannot be made without these starting
records is discriminatory, unfair and violates the rules of
accountancy. For example, where is the report on the illegal
assignments and mortgages complete with details? Where did the
rentals for the period from 1983 to 1989 go? This amounted to
millions. There are no reports on these. By not requiring the first
Mancom to Report, the SEC is preventing the complete picture on
the liabilities and finances of Ruby from being seen and is
sheltering Ruby and the majority.[64] (Additional emphasis supplied.)

Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of
a stockholder of a stock corporation to subscribe to all issues or disposition of shares
of any class, in proportion to their respective shareholdings. The right may be
restricted or denied under the articles of incorporation, and subject to certain
exceptions and limitations.The stockholder must be given a reasonable time within
which to exercise their preemptive rights. Upon the expiration of said period, any
stockholder who has not exercised such right will be deemed to have waived it.[65]

The validity of issuance of additional shares may be questioned if done in


breach of trust by the controlling stockholders. Thus, even if the pre-emptive right
does not exist, either because the issue comes within the exceptions in Section 39 or
because it is denied or limited in the articles of incorporation, an issue of shares may
still be objectionable if the directors acted in breach of trust and their primary
purpose is to perpetuate or shift control of the corporation, or to freeze out the
minority interest.[66] In this case, the following relevant observations should have
signaled greater circumspection on the part of the SEC -- upon the third and last
remand to it pursuant to our January 20, 1998 decision -- to demand transparency
and accountability from the majority stockholders, in view of the illegal assignments
and objectionable features of the Revised BENHAR/RUBY Plan, as found by the
CA and as affirmed by this Court:

There can be no gainsaying the well-established rule in corporate


practice and procedure that the will of the majority shall govern in all
matters within the limits of the act of incorporation and lawfully
enacted by-laws not proscribed by law. It is, however, equally true that
other stockholders are afforded the right to intervene especially during
Page 227 of 675

critical periods in the life of a corporation like reorganization, or in this


case, suspension of payments, more so, when the majority seek to
impose their will and through fraudulent means, attempt to siphon
off Rubys valuable assets to the great prejudice of Ruby itself, as
well as the minority stockholders and the unsecured creditors.
Certainly, the minority stockholders and the unsecured creditors
are given some measure of protection by the law from the abuses and
impositions of the majority, more so in this case, considering the give-
away signs of private respondents perfidy strewn all over the
factual landscape. Indeed, equity cannot deprive the minority of a
remedy against the abuses of the majority, and the present action has
been instituted precisely for the purpose of protecting the true and
legitimate interests of Ruby against the Majority Stockholders. On this
score, the Supreme Court, has ruled that:
Generally speaking, the voice of the majority of the
stockholders is the law of the corporation, but there are
exceptions to this rule. There must necessarily be a limit
upon the power of the majority. Without such a limit the
will of the majority will be absolute and irresistible and
might easily degenerate into absolute tyranny. x x
x[67] (Additional emphasis supplied.)

Lamentably, the SEC refused to heed the plea of the minority stockholders
and MANCOM for the SEC to order RUBY to commence liquidation proceedings,
which is allowed under Sec. 4-9 of the Rules on Corporate Recovery. Under the
circumstances, liquidation was the only hope of the minority stockholders for
effecting an orderly and equitable settlement of RUBYs obligations, and compelling
the majority stockholders to account for all funds, properties and documents in their
possession, and make full disclosure on the nullified credit assignments. Oblivious
to these pending incidents so crucial to the protection of the interest of the majority
of creditors and minority shareholders, the SEC simply stated that in the interim,
RUBYs corporate term was validly extended, as if such extension would provide the
solution to RUBYs myriad problems.

Extension of corporate term requires the vote of 2/3 of the outstanding capital
stock in a stockholders meeting called for the purpose.[68] The actual percentage of
Page 228 of 675

shareholdings in RUBY as of September 3, 1996 -- when the majority stockholders


allegedly ratified the board resolution approving the extension of RUBYs corporate
life to another 25 years was seriously disputed by the minority stockholders, and we
find the evidence of compliance with the notice and quorum requirements submitted
by the majority stockholders insufficient and doubtful. Consequently, the SEC had
no basis for its ruling denying the motion of the minority stockholders to declare as
without force and effect the extension of RUBYs corporate existence.

Liquidation, or the settlement of the affairs of the corporation, consists of


adjusting the debts and claims, that is, of collecting all that is due the corporation,
the settlement and adjustment of claims against it and the payment of its just
debts.[69] It involves the winding up of the affairs of the corporation, which means
the collection of all assets, the payment of all its creditors, and the distribution of the
remaining assets, if any, among the stockholders thereof in accordance with their
contracts, or if there be no special contract, on the basis of their respective
interests.[70]

Section 122 of the Corporation Code, which is applicable to the present case,
provides:

SEC. 122. Corporate liquidation. -- Every corporation whose


charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is
terminated in any other manner, shall nevertheless be continued as a
body corporate for three (3) years after the time when it would have
been so dissolved, for the purpose of prosecuting and defending suits
by or against it and enabling it to settle and close its affairs, to dispose
of and convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was established.

At any time during said three (3) years, said corporation is


authorized and empowered to convey all of its property to trustees for
the benefit of stockholders, members, creditors, and other persons in
interest. From and after any such conveyance by the corporation of its
property in trust for the benefit of its stockholders, members, creditors
and others in interest, all interests which the corporation had in the
property terminates, the legal interest vests in the trustees, and the
beneficial interest in the stockholders, members, creditors or other
persons in interest.
Page 229 of 675

Upon winding up of the corporate affairs, any asset distributable


to any creditor or stockholder or member who is unknown or cannot be
found shall be escheated to the city or municipality where such assets
are located.

Except by decrease of capital stock and as otherwise allowed by


this Code, no corporation shall distribute any of its assets or property
except upon lawful dissolution and after payment of all its debts and
liabilities.

Since the corporate life of RUBY as stated in its articles of incorporation expired,
without a valid extension having been effected, it was deemed dissolved by such
expiration without need of further action on the part of the corporation or the
State.[71] With greater reason then should liquidation ensue considering that the last
paragraph of Sec. 4-9 of the Rules of Procedure on Corporate Recovery mandates
the SEC to order the dissolution and liquidation proceedings under Rule VI. Sec. 6-
1, Rule VI likewise authorizes the SEC on motion or motu proprio, or upon
recommendation of the management committee, to order dissolution of the debtor
corporation and the liquidation of its remaining assets, appointing a Liquidator for
the purpose, if the continuance in business of the debtor is no longer feasible or
profitable or no longer works to the best interest of the stockholders, parties-litigants,
creditors, or the general public.

It cannot be denied that with the current divisiveness, distrust and antagonism
between the majority and minority stockholders, the long agony and extreme
prejudice caused by numerous litigations to the creditors, and the bleak prospects for
business recovery in the light of problems with the local government which are
implementing more restrictions and anti-pollution measures that practically banned
the operation of RUBYs glass plant liquidation becomes the only viable course for
RUBY to stave off any further losses and dissipation of its assets. Liquidation would
also ensure an orderly and equitable settlement of all creditors of RUBY, both
secured and unsecured.

The SECs utter disregard of the rights of the minority in applying the provisions of
the Rules of Procedure on Corporate Recovery is inconsistent with the policy of
liberal construction of the said rules to assist the parties in obtaining a just,
expeditious and inexpensive settlement of cases.[72] Petitioners majority
stockholders, however, assert that the findings and conclusions of the SEC on the
Page 230 of 675

matter of the dismissal of RUBYs petition are binding and conclusive upon the CA
and this Court. They contend that reviewing courts are not supposed to substitute
their judgment for those made by administrative bodies specifically clothed with
authority to pass upon matters over which they have acquired expertise. [73] Given
our foregoing findings clearly showing that the SEC acted arbitrarily and committed
patent errors and grave abuse of discretion, this case falls under the exception to the
general rule.

As we held in Ruby Industrial Corporation v. Court of Appeals:

The settled doctrine is that factual findings of an administrative


agency are accorded respect and, at times, finality for they have
acquired the expertise inasmuch as their jurisdiction is confined to
specific matters. Nonetheless, these doctrines do not apply when the
board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard
to his duty or with grave abuse of discretion. In Leongson vs. Court of
Appeals, we held: once the actuation of the administrative official or
administrative board or agency is tainted by a failure to abide by the
command of the law, then it is incumbent on the courts of justice to set
matters right, with this Tribunal having the last say on the matter.[74]

Petitioners majority stockholders further insist that the minority stockholders were
mistaken when they contended that the rehabilitation of RUBY is dependent on the
unwinding by the SEC of the illegal assignments and mortgages. They assert that
aside from the fact that the SEC had nothing to unwind because the alleged illegal
assignments and mortgages were already declared null and void, the said
assignments and mortgages will not affect the rehabilitation of Ruby; the
same affecting only the issue of how, as to who will be its creditors.

Such contention is untenable and contrary to our previous ruling in G.R. Nos.
124185-87. With the nullification of the deeds of assignments of credit executed by
some of Rubys secured creditors in favor of BENHAR, it logically follows that the
assignors or the original bank creditors remain as the creditors on record of
RUBY. We have noted that BENHAR, which is controlled by the family of Henry
Yu who is also a director and stockholder of RUBY, was not listed as one of RUBYs
creditors at the time RUBY filed the petition for suspension of payment. Petitioners
majority stockholders insinuation that RUBYs credits may have been assigned to
Page 231 of 675

third parties, if not referring to BENHAR or its conduits, implies two things: either
the assignments declared void by this Courts January 20, 1998 decision continues to
be recognized by the majority stockholders, in violation of the said decision, or other
third parties in connivance with BENHAR and/or the controlling stockholders had
subsequently entered the picture, without approval of the SEC and while the SEC
December 20, 1983 Order enjoining the disposition of RUBYs properties was in
force.

The majority stockholders eagerness to have the suspension order lifted or vacated
by the SEC without any order for its liquidation evinces a total disregard of the
mandate of Sec. 4-9 of the Rules of Procedure on Corporate Recovery, and their
obvious lack of any intent to render an accounting of all funds, properties and details
of the unlawful assignment transactions to the prejudice of RUBY, minority
stockholders and the majority of RUBYs creditors. The majority stockholders and
BENHARs conduits must not be allowed to evade the duty to make such full
disclosure and account any money due to RUBY to enable the latter to effect a fair,
orderly and equitable settlement of all its obligations, as well as distribution of any
remaining assets after paying all its debtors.

In fine, no error was committed by the CA when it set aside the September 18, 2002
Order of the SEC and declared the nullity of the acts of majority stockholders in
implementing capital infusion through issuance of additional shares in October
1991, the board resolution approving the extension of RUBYs corporate term for
another 25 years, and any illegal assignment of credit executed by RUBYs creditors
in favor of third parties and/or conduits of the controlling stockholders. The CA
likewise correctly ordered the delivery of all documents relative to the said
assignment of credits to the MANCOM or the Liquidator, the unwinding of these
void deeds of assignment, and their full accounting by the majority stockholders.

The petitioners majority stockholders and China Bank cannot be permitted to raise
any issue again regarding the validity of any assignment of credit made during the
effectivity of the suspension order and before the finality of the September 18, 2002
Order lifting the same. While China Bank is not precluded from questioning the
validity of the December 20, 1983 suspension order on the basis of res judicata, it
is, however, barred from doing so by the principle of law of the case. We have held
that when the validity of an interlocutory order has already been passed upon on
appeal, the Decision of the Court on appeal becomes the law of the case between the
same parties. Law of the case has been defined as the opinion delivered on a former
Page 232 of 675

appeal. More specifically, it means that whatever is once irrevocably established as


the controlling legal rule of decision between the same parties in the same case
continues to be the law of the case, whether correct on general principles or not, so
long as the facts on which such decision was predicated continue to be the facts of
the case before the court.[75]

The unwinding process of all such illegal assignment of RUBYs credits is


critical and necessary, in keeping with good faith and as a matter of fairness and
justice to all parties affected, particularly the unsecured creditors who stands to
suffer most if left with nothing of the assets of RUBY, and the minority stockholders
who waged legal battles to defend the interest of RUBY and protect the rights of the
minority from the abuses of the controlling stockholders. As correctly stated by the
CA:

Liquidation is imperative because the unsecured creditor must


negotiate the amount of the imputable interest rate on its long unpaid
credit, the decision on which assets are to be sold to liquidate the
illegally assigned credits must be made, the other secured credits and
the trade credits must be determined, and most importantly, the
restoration of the 40.172% minority percentage of ownership must be
done.[76]

However, we do not agree that it is the SEC which has the authority to supervise
RUBYs liquidation.

In the case of Union Bank of the Philippines v. Concepcion,[77] the Court is presented
with the issue of whether the SEC had jurisdiction to proceed with insolvency
proceedings after it was shown that the debtor corporation can no longer be
rehabilitated. We held that although jurisdiction over a petition to declare a
corporation in a state of insolvency strictly lies with regular courts, the SEC
possessed ample power under P.D. No. 902-A, as amended, to declare a corporation
insolvent as an incident of and in continuation of its already acquired jurisdiction
over the petition to be declared in a state of suspension of payments in the two
instances provided in Sec. 5 (d)[78] thereof.

Subsequently, in Consuelo Metal Corporation v. Planters Development Bank[79] the


Court was again confronted with the same issue. The original petition filed by the
debtor corporation was for suspension of payment, rehabilitation and appointment
Page 233 of 675

of a rehabilitation receiver or management committee. Finding the petition sufficient


in form and substance, the SEC issued an order suspending immediately all actions
for claims against the petitioner pending before any court, tribunal or body until
further orders from the court. It also created a management committee to undertake
petitioners rehabilitation. Four years later, upon the management committees
recommendation, the SEC issued an omnibus order directing the dissolution and
liquidation of the petitioner, and that the proceedings on and implementation of the
order of liquidation be commenced at the Regional Trial Court to which the case was
transferred. However, the trial court refused to act on the motion filed by the
petitioner who requested for the issuance of a TRO against the extrajudicial
foreclosure initiated by one of its creditors. The trial court ruled that since the SEC
had already terminated and decided on the merits the petition for suspension of
payment, the trial court no longer had legal basis to act on petitioners motion. It
likewise denied the motion for reconsideration stating that petition for suspension of
payment could not be converted into a petition for dissolution and liquidation
because they covered different subject matters and were governed by different
rules. Petitioners remedy thus was to file a new petition for dissolution and
liquidation either with the SEC or the trial court.

When the case was elevated to the CA, the petition was dismissed affirming that
under Sec. 121 of the Corporation Code, the SEC had jurisdiction to hear the petition
for dissolution and liquidation. On motion for reconsideration, the CA remanded the
case to the SEC for proceedings under Sec. 121 of the Corporation Code. The CA
denied the motion for reconsideration filed by the respondent creditor, who then filed
a petition for review with this Court.

We ruled that the SEC observed the correct procedure under the present law, in cases
where it merely retained jurisdiction over pending cases for suspension of
payments/rehabilitation, thus:

Republic Act No. 8799 (RA 8799) transferred to the appropriate


regional trial courts the SECs jurisdiction defined under Section 5(d) of
Presidential Decree No. 902-A. Section 5.2 of RA 8799 provides:
The Commissions jurisdiction over all cases enumerated
under Sec. 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, That the
Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall
Page 234 of 675

exercise jurisdiction over these cases. The Commission


shall retain jurisdiction over pending cases involving intra-
corporate disputes submitted for final resolution which
should be resolved within one (1) year from the enactment
of this Code. The Commission shall retain jurisdiction
over pending suspension of payments/rehabilitation
cases filed as of 30 June 2000 until finally
disposed. (Emphasis supplied)

The SEC assumed jurisdiction over CMCs petition for


suspension of payment and issued a suspension order on 2 April 1996
after it found CMCs petition to be sufficient in form and substance.
While CMCs petition was still pending with the SEC as of 30 June
2000, it was finally disposed of on 29 November 2000 when the SEC
issued its Omnibus Order directing the dissolution of CMC and the
transfer of the liquidation proceedings before the appropriate trial court.
The SEC finally disposed of CMCs petition for suspension of payment
when it determined that CMC could no longer be successfully
rehabilitated.

However, the SECs jurisdiction does not extend to the liquidation


of a corporation. While the SEC has jurisdiction to order the
dissolution of a corporation, jurisdiction over the liquidation of the
corporation now pertains to the appropriate regional trial courts.
This is the reason why the SEC, in its 29 November 2000 Omnibus
Order, directed that the proceedings on and implementation of the order
of liquidation be commenced at the Regional Trial Court to which this
case shall be transferred. This is the correct procedure because the
liquidation of a corporation requires the settlement of claims for
and against the corporation, which clearly falls under the
jurisdiction of the regular courts. The trial court is in the best
position to convene all the creditors of the corporation, ascertain
their claims, and determine their preferences.[80] (Additional
emphasis supplied.)

In view of the foregoing, the SEC should now be directed to transfer this case to the
proper RTC which shall supervise the liquidation proceedings under Sec. 122 of
the Corporation Code. Under Sec. 6 (d) of P.D. 902-A, the SEC is empowered, on
the basis of the findings and recommendations of the management committee or
Page 235 of 675

rehabilitation receiver, or on its own findings, to determine that the continuance in


business of a debtor corporation under suspension of payment or rehabilitation
would not be feasible or profitable nor work to the best interest of the stockholders,
parties-litigants, creditors, or the general public, order the dissolution of such
corporation and its remaining assets liquidated accordingly. As mentioned earlier,
the procedure is governed by Rule VI of the SEC Rules of Procedure on Corporate
Recovery.

However, R.A. No. 10142[81] otherwise known as the Financial Rehabilitation and
Insolvency Act (FRIA) of 2010, now provides for court proceedings in the
rehabilitation or liquidation of debtors, both juridical and natural persons, in a
manner that will ensure or maintain certainty and predictability in commercial
affairs, preserve and maximize the value of the assets of these debtors, recognize
creditor rights and respect priority of claims, and ensure equitable treatment of
creditors who are similarly situated. Considering that this case was still pending
when the new law took effect last year, the RTC to which this case will be transferred
shall be guided by Sec. 146 of said law, which states:
SEC. 146. Application to Pending Insolvency, Suspension of
Payments and Rehabilitation Cases. This Act shall govern all petitions
filed after it has taken effect. All further proceedings in insolvency,
suspension of payments and rehabilitation cases then pending, except
to the extent that in opinion of the court their application would not be
feasible or would work injustice, in which event the procedures set forth
in prior laws and regulations shall apply.

WHEREFORE, the petitions for review on certiorari are DENIED. The Decision
dated May 26, 2004 and Resolution dated November 4, 2004 of the Court of Appeals
in CA-G.R. SP No. 73195 are hereby AFFIRMED with MODIFICATION in that the
Securities and Exchange Commission is hereby ordered to TRANSFER SEC Case No.
2556 to the appropriate Regional Trial Court which is hereby DIRECTED to supervise
the liquidation of Ruby Industrial Corporation under the provisions of R.A. No. 10142.

With costs against the petitioners.

SO ORDERED.
Page 236 of 675

G.R. No. 138343 February 19, 2001

GILDA C. LIM, WILHELMINA V. JOVEN and DITAS A.


LERIOS, petitioners,
vs.
PATRICIA LIM-YU, in her capacity as a minority stockholder of LIMPAN
INVESTMENT CORPORATION, respondent.

PANGANIBAN, J.:

A suit to enforce preemptive rights in a corporation is not a derivative suit. Thus, a


temporary restraining order enjoining a person from representing the corporation
will not bar such action, because it is instituted on behalf and for the benefit of the
shareholder, not the corporation.

Statement of the Case

Petitioners seek the reversal,1 under Rule 45 of the Rules of Court, of the July 31,
1998 Decision2 of the Court of Appeals3 (CA) in CA-GR SP No. 46292 and of its
March 25, 1999 Resolution4 denying reconsideration. The decretal portion of the
appealed Decision, which affirmed the Securities and Exchange Commission (SEC),
reads as follows:

"WHEREFORE, judgment is hereby rendered DISMISSING the Petition for


lack of merit. The preliminary injunction previously issued is hereby
LIFTED."5

The Facts

The undisputed facts are summarized by the Court of Appeals as follows:


Page 237 of 675

"At a special meeting on 07 October 1994, the Board of Directors of Limpan


Investment Corporation (LIMPAN) approved a resolution of the following
tenor:

'RESOLVED that the corporation make a partial payment [for] the legal
services of Gilda C. Lim in the handling of various cases on behalf of,
or involving the corporation in the amount of P1,551,500.00 to be paid
in equivalent value in shares of stock of the corporation totaling 15,515
shares, the same being found to be reasonable, and there being no
available funds to pay the same.1wphi1.nt

'RESOLVED FURTHER, that the Corporate Secretary be authorized,


as he is hereby authorized, to secure and comply with necessary
requirements of the law for the issuance of said shares.'

"On 18 October 1994, the Corporate Secretary Jaime G. Manzano filed a


request before the Corporate and legal Affairs Department of the SEC asking
for the exemption of the 15,515 shares from the registration requirements of
the Revised Securities Act; the request was granted in a Resolution dated 14
November 1994. Due to the issuance of the unsubscribed shares to the
petitioner GILDA C. LIM (LIM), all of LIMPAN's authorized capital stock
became fully subscribed, with LIM ending up controlling 62.5% of the shares.

"In July 1996, the private respondent PATRICIA LIM YU (YU), a sister of
the petitioner, LIM, filed a complaint against the members of the Board of
Directors of LIMPAN who approved the aforesaid resolution (GILDA C.
LIM, WILHEIMINA V. JOVEN, DITAS A. LERIOS, AUGUSTO R.
BUNDANG, TERESITA C. VELEZ and JAIME MANZANO). The action
was docketed as SEC Case No. 07-95-5114.

"BUNDANG, VELEZ, and MANZANO filed an Answer, asserting as


affirmative defenses that the complaint failed to state a cause of action against
them; that YU had no legal capacity to sue; and that the issuance of the shares
in LIM's favor was bona fide and valid pursuant to law and LIMPAN's By-
laws. In turn, the herein petitioners LIM, JOVEN and LERIOS filed a Motion
to Dismiss on the following grounds: that YU had no legal capacity to sue;
that the complaint failed to state a cause of action against JOVEN and
LERIOS, and that no earnest efforts were exerted towards a compromise, YU
and LIM being siblings.
Page 238 of 675

"In support of their ground that YU ha[d] no legal capacity to sue, the
petitioners pointed out that LIM had previously filed a petition for
guardianship before the Regional Trial Court of Manila, docketed as Special
proceeding No. 94-71010, praying for the issuance of letters of guardianship
over YU. On 14 July 1994, the Presiding Judge of Branch 48, the Hon.
Demetrio M. Batario, Jr., issued an Order, the relevant portion of which
enjoined YU 'from entering into, or signing, contracts or documents on her
behalf or on behalf of others' x x x.' On 16 August 1994, LIM was appointed
[as] YU's general guardian, and the former took her oath as such on the same
day. YU appealed LIM's appointment to the Supreme Court ("Patricia C. Lim-
Yu, et al. v. Hon. Judge Demetrio M. Batario, Jr., et al.,' G.R. No.116926). On
27 February 1994, the High Court issued a Resolution giving due course to
YU's petition. It likewise issued a temporary restraining order, the (pertinent
portion of which is quoted hereunder:

'(b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for,


limited however, to the 'Writ of Preliminary Injunction' dated 22
August 1994 and the order dated 14 July 1994 both issued in SP
Proceeding No. 94-71010 which in the opinion of the Court are all too
encompassing and should be limited in scope and subject to the
conditions set forth in the resolution of September 28, 1994 that,
'(D)uring the effectivity of the temporary restraining order, petitioner
Patricia C. Lim, her attorneys, representatives, agents and any other
persons assisting petitioner Patricia C. Lim will be able to act, enter into
or sign contracts or documents solely for and on behalf of Patricia C.
Lim; said actions, contracts or documents should not in any way bind
or affect the interests of her parents, Isabelo P. Lim an Purificacion C.
Lim, her brothers and sisters and any family owned or controlled
corporation in particular, the Limpan Investment Corporation.'

'NOW THEREFORE, You (Respondent Hon. Judge Demetrio M.


Batario, Jr.), your agents, representatives, and/or any person or persons,
acting upon your orders or in your place or stead, are hereby
RESTRAINED and ENJOINED from enforcing and carrying out the
Writ of Preliminary Injunction dated 22 August 1994 and the Order
dated 14 July 1994 both issued by respondent Judge In SP Proceeding
No. 94-71010.' (underscoring supplied)
Page 239 of 675

"The petitioners argued that, under the aforesaid order YU [was] incapacitated
from filing a derivative suit. YU naturally espoused the opposite view.

"Acting on the petitioners' Motion to Dismiss, the Hearing Officer, Atty.


Manuel Perea, issued an Order dated 05 January 1996, holding in abeyance
the resolution of the motion to dismiss, which reads as follows:

'Before this Commission is the motion to dismiss filed by respondents


Gilda C. Lim, et al., as well as the opposition thereto.

'In view of the conflicting interpretation of the order issued by the


Supreme Court in Sp. Proc. No. 94-70010 regarding the legal capacity
of the plaintiff [--] x x x who is allegedly under guardianship [-- to file
the instant action] either or both parties are directed to file a motion for
clarification of the orders invoked by respondent Gilda C. Lim, et al.
The desired clarification is perceived to settle the issue of plaintiff's
capacity to file the instant action.

'Meanwhile, resolution of the pending incident shall be held in


abeyance until the parties shall have secured the desired
interpretation/opinion of the Supreme Court on the matter.'

"Yu filed a Motion for Reconsideration dated 08 April 1996, which was
denied in an Order dated 25 April 1996, on the ground that it was filed beyond
the ten-day period allowed for seeking reconsideration. Yu filed a Motion for
Leave to Admit Second Motion for Reconsideration dated 02 July 1996 which
the Hearing Officer also denied.

"From the denial of her second motion for reconsideration, Yu filed a petition
for certiorari before the SEC En Banc seeking to set aside the Order of 05
January 1994. On 04 February 1994, the SEC En Banc issued the first assailed
order granting the petition for certiorari, and ordering the Securities
Investigation & Clearing Department (SICD) to hear the other grounds of the
Motion to Dismiss and to continue the case until its final determination. A
motion for reconsideration filed by L[im] having been denied, the instant
petition for review was instituted before this Court. x x x."6

Ruling of the Court of Appeal


Page 240 of 675

Ruling that the Supreme Court's TRO was clear, the CA agreed with the SEC that,
pending clarification thereof, there was no need for the hearing officer to defer ruling
on the Motion to Dismiss. The appellate court stated that the TRO did not prohibit
herein Respondent Patricia Lim-Yu from acting or entering into contracts on her
own behalf or from protecting her rights. The root of the present controversy -- the
Complaint she filed before the SEC -- relates to a denial of her preemptive right as
a shareholder. Thus, her capacity to file the suit must be sustained. Finally, on the
question of the timeliness of respondent's Petition for Certiorari. before the SEC, the
CA ruled that adherence to strict technical rules should be relaxed to prevent
palpable injustice.

Hence, this recourse.7

Issues

In their Memorandum,8 petitioners raise the following issues:

"I

The Honorable Court of Appeals erred in sustaining the respondent's legal


capacity to sue the petitioners by relying solely on the first half of this
Honorable Court's TRO and without considering the second half of said TRO.

"II

The Honorable Court of Appeals erred in disregarding the sole


power/authority of the Supreme Court to enforce/clarify its own
resolutions/orders under the Rules of Court.

"III

The Honorable Court of Appeals in effect allowed the Securities and


Exchange Commission (SEC) to maintain two conflicting positions on similar
matters before it (SEC) when it upheld the SEC's position that clarification of
this Honorable Court's TRO was not needed in SEC Case No. 07-95-5114.

"IV.

The Honorable Court of Appeals failed to consider that herein respondent had
been repeatedly and notoriously guilty of laches.
Page 241 of 675

Simply put, the main issue is whether respondent had the legal capacity to file her
Complaint before the SEC. The others are merely incidental to this main point.

The Court's Ruling

The Petition has no merit.

First Issue:

Legal Capacity to Sue

Petitioners point out that both the SEC and the Court of Appeals considered only the
first part of the Supreme Court TRO and completely ignored the second part.
Supposedly, the latter part barred respondent from entering into agreements that
would affect her family and the corporation. Hence, they claim that the TRO, taken
as a whole, proscribed respondent's "derivative suit," which sought to "enjoin herein
[P]etitioner Gilda C. Lim from further voting or exercising any and all rights arising
from the issuance to her of 15,515 shares of stock of the corporation."9

We do not agree. The pertinent portion of the TRO issued by this Court reads as
follows:

"(b) to ISSUE the TEMPORARY RESTRAINING ORDER prayed for,


limited however, to the 'Writ of Preliminary Injunction' dated 22 August 1994
and the Order dated 14 July 1994 both issued in SP Proceeding No. 94-71010
which in the opinion of the Court are all too encompassing and should be
limited in scope and subject to the conditions set forth in the Resolution of
September 28, 1994 that, '(D)uring the effectivity of the Temporary
Restraining Order, petitioner Patricia C. Lim, her attorneys, representatives,
agents and any other persons assisting petitioner Patricia C. Lim will be able
to act, enter into or sign contracts or documents solely for and on behalf of
Patricia C. Lim; said actions, contracts or documents should not in any way
bind or affect the interests of her parents, Isabelo P. Lim and Purificacion C.
Lim, her brothers and sisters and any family owned or controlled corporation
in particular, the Limpan Investment Corporation."

Simply put, the TRO allows Respondent Patricia Lim-Yu to act for herself and to
enter into any contract on her own behalf. However, she cannot transact in
representation of or for the benefit of her parents, brothers or sisters, or the Limpan
Investment Corporation. Contrary to what petitioners suggest, all that is prohibited
Page 242 of 675

is any action that will bind them. In short, she can act only on and in her own behalf,
not that of petitioners or the Corporation.

There appears to be a confusion on the nature of the suit initiated before the SEC.
Petitioners describe it as a derivative suit, which has been defined as "an action
brought by minority shareholders in the name of the corporation to redress wrongs
committed against it, for which the directors refuse to sue. It is a remedy designed
by equity and has been the principal defense of the minority shareholders against
abuses by the majority."10 In a derivative action, the real party in interest is the
corporation itself, I not the shareholder(s) who actually instituted it.

"If the suit filed by respondent was indeed derivative in character, then respondent
may not have the capacity to sue. The reason is that she would be acting in
representation of the corporation, an act which the TRO enjoins her from doing.

We hold, however, that the suit of respondent cannot be characterized as derivative,


because she was complaining only of the violation of her preemptive right under
Section 39 of the Corporation Code.11 She was merely praying that she be allowed
to subscribe to the additional issuances of stocks in proportion to her shareholdings
to enable her to preserve her percentage of ownership in the corporation. She was
therefore not acting for the benefit of the corporation. Quite the contrary, she was
suing on her own behalf, out of a desire to protect and preserve her preemptive rights.
Unquestionably, the TRO did not prevent her from pursuing that action.

To repeat, the TRO issued by this Court had two components: (1) it allowed
respondent to enter into agreements on her own behalf; and (2) it clarified that
respondent's acts could not bind or affect the interests of her parents, brothers or
sisters, or Limpan. In other words, respondent was, as a rule, allowed to act; but, as
an exception, was prohibited from doing anything that would bind the corporation
or any of the above-named persons.

In this light, the TRO did not prohibit respondent from filing, on and in her own
behalf; a suit for the alleged violation of her preemptive rights to purchase additional
stock subscriptions. In other words, it did not restrain respondent from acting and
enforcing her own rights. It merely barred her from acting in representation of the
corporation.

Petitioners fail to appreciate the distinction between the act itself and its net result.
The act of filing the suit did not in any way bind the corporation. The result of such
Page 243 of 675

act affected it, however. Similarly, respondent can sell her shares to the corporation
or make a will and designate her parents, for example, as beneficiaries. It would be
quite far-fetched to say that these acts are prohibited by the TRO, even if they will
definitely affect the corporation and her parents.

Section 2 of Rule 3 of the Rules of Court12 defines a real party in interest - as one
who is entitled to the avails of any judgment rendered in a suit, or who stands to be
benefited or injured by it. In the present case, it is clear that respondent was suing
on her own behalf in order to enforce her preemptive rights. Nothing, not the TRO,
barred her from filing that suit.1wphi1.nt

Incidental Issues

Power to Clarify Own Resolutions

Petitioners also assail the ruling of the Court of Appeals that the SEC hearing officer
"was bound to interpret the Supreme Court's order instead of burdening [it] with the
responsibility of 'clarifying' what already appears to be a clear order." Citing Section
5 (5) of Article VIII13 of the Constitution and Section 5 of Rule 135,14 petitioners
contend that the ruling disregarded the Supreme Court's power to control and to
clarify its own orders, as granted by the Constitution.

The argument must be rejected outright. First, as stated earlier the TRO was very
clear. In such instances, it was axiomatic that there was no need for interpretation,
only for application.15 Hence, there was no reason for the SEC hearing officer to rely
on the rules of statutory construction or for this Court to clarify its
Order. Second, even assuming that there was a need to interpret the TRO, the hearing
officer was duty-bound to do so. Indeed, the mandate to apply and interpret pertinent
laws and rulings is necessarily included in the "adjudicative functions" 16of the SEC
or of any other quasi-judicial body for that matter.17

Verily, the power of this Court to clarify its own orders does not divest the SEC of
its function to apply those orders to cases before it. If parties disagree with the SEC,
they can file the proper suit in a regular court in accordance with law." In any
event, the seeming obscurity or ambiguity of a TRO is not an excuse for a quasi-
judicial body, or any regular court or judge, to shirk from the responsibility of
applying and interpreting it.18

Alleged Conflicting Positions of the SEC


Page 244 of 675

Petitioners further contend that the CA effectively allowed the SEC to maintain
contradictory positions on similar matters. They cite Philippine Commercial
International Bank v. Aquaventures Corporation, docketed as SEC En Banc Case
No. 455, in "which the SEC referred a TRO to this Court for clarification.19

This argument is untenable. The alleged contradictory SEC ruling in the said case is
irrelevant and unnecessary to the resolution of the present one. Petitioners do not
claim that the factual milieu of the former is similar to that of the latter. Moreover,
the actions of the SEC in the above-mentioned, case have not been put at issue by
the proper parties in these proceedings. In any event, they are neither binding nor
conclusive on appeal. They may be the subject of the Court's review in accordance
with the applicable provisions of the Rules of Court.

Laches

Petitioners further contend that the CA failed to appreciate that respondent had been
"repeatedly and notoriously guilty of laches." They point out that she filed a Motion
for Reconsideration of the SEC hearing officer's Order almost four months late. They
further allege that it took her another two and a half months to file a Motion for
Leave to Admit Second Motion for Reconsideration.20

We reject this argument. It has been held that it is the better rule that courts, under
the principle of equity, shall not be bound strictly by the doctrine of laches, when a
manifest wrong or injustice would result.21 To rule that respondent can no longer
question the hearing officer would deprive her of the opportunity to sue in order to
enforce her preemptive rights, an act that is not proscribed by this Court's TRO.

WHEREFORE, the Petition is hereby DENIED and the assailed


Decision AFFIRMED. Costs against petitioners.

SO ORDERED.

OSCAR C. REYES, G.R. No. 165744


Page 245 of 675

Petitioner,
Present:

QUISUMBING, J., Chairperson,


*
CORONA,
- versus - CARPIO MORALES,
VELASCO, JR., and
BRION, JJ.

HON. REGIONAL TRIAL Promulgated:


COURT OF MAKATI, Branch
142, ZENITH INSURANCE
CORPORATION, and August 11, 2008
RODRIGO C. REYES,
Respondents.

x -------------------------------------------------------------------------------------------x

DECISION

BRION, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeks to set aside the Decision of the Court of Appeals (CA)[1] promulgated on May
Page 246 of 675

26, 2004 in CA-G.R. SP No. 74970. The CA Decision affirmed the Order of the
Regional Trial Court (RTC), Branch 142, Makati City dated November 29, 2002[2] in
Civil Case No. 00-1553 (entitled "Accounting of All Corporate Funds and Assets,
and Damages") which denied petitioner Oscar C. Reyes (Oscar) Motion to Declare
Complaint as Nuisance or Harassment Suit.

BACKGROUND FACTS

Oscar and private respondent Rodrigo C. Reyes (Rodrigo) are two of the four
children of the spouses Pedro and Anastacia Reyes. Pedro, Anastacia, Oscar, and
Rodrigo each owned shares of stock of Zenith Insurance Corporation (Zenith), a
domestic corporation established by their family. Pedro died in 1964, while
Anastacia died in 1993. Although Pedros estate was judicially partitioned among his
heirs sometime in the 1970s, no similar settlement and partition appear to have been
made with Anastacias estate, which included her shareholdings in Zenith. As of June
30, 1990, Anastacia owned 136,598 shares of Zenith; Oscar and Rodrigo owned
8,715,637 and 4,250 shares, respectively.[3]

On May 9, 2000, Zenith and Rodrigo filed a complaint[4] with the Securities and
Exchange Commission (SEC) against Oscar, docketed as SEC Case No. 05-00-
6615. The complaint stated that it is a derivative suit initiated and filed by the
complainant Rodrigo C. Reyes to obtain an accounting of the funds and assets of
ZENITH INSURANCE CORPORATION which are now or formerly in the control,
custody, and/or possession of respondent [herein petitioner Oscar] and to determine
the shares of stock of deceased spouses Pedro and Anastacia Reyes that were
arbitrarily and fraudulently appropriated [by Oscar] for himself [and] which were
not collated and taken into account in the partition, distribution, and/or settlement
of the estate of the deceased spouses, for which he should be ordered to account for
all the income from the time he took these shares of stock, and should now deliver to
his brothers and sisters their just and respective shares.[5] [Emphasis supplied.]
Page 247 of 675

In his Answer with Counterclaim,[6] Oscar denied the charge that he illegally
acquired the shares of Anastacia Reyes. He asserted, as a defense, that he purchased
the subject shares with his own funds from the unissued stocks of Zenith, and that
the suit is not a bona fide derivative suit because the requisites therefor have not been
complied with. He thus questioned the SECs jurisdiction to entertain the complaint
because it pertains to the settlement of the estate of Anastacia Reyes.

When Republic Act (R.A.) No. 8799[7] took effect, the SECs exclusive and original
jurisdiction over cases enumerated in Section 5 of Presidential Decree (P.D.) No.
902-A was transferred to the RTC designated as a special commercial court.[8] The
records of Rodrigos SEC case were thus turned over to the RTC, Branch 142, Makati,
and docketed as Civil Case No. 00-1553.

On October 22, 2002, Oscar filed a Motion to Declare Complaint as Nuisance or


Harassment Suit.[9] He claimed that the complaint is a mere nuisance or harassment
suit and should, according to the Interim Rules of Procedure for Intra-Corporate
Controversies, be dismissed; and that it is not a bona fide derivative suit as it partakes
of the nature of a petition for the settlement of estate of the deceased Anastacia that
is outside the jurisdiction of a special commercial court. The RTC, in its Order
dated November 29, 2002 (RTC Order), denied the motion in part and declared:

A close reading of the Complaint disclosed the presence of two (2)


causes of action, namely: a) a derivative suit for accounting of the funds
and assets of the corporation which are in the control, custody, and/or
possession of the respondent [herein petitioner Oscar] with prayer to
appoint a management committee; and b) an action for determination
of the shares of stock of deceased spouses Pedro and Anastacia Reyes
allegedly taken by respondent, its accounting and the corresponding
delivery of these shares to the parties brothers and sisters. The latter is
not a derivative suit and should properly be threshed out in a petition
for settlement of estate.
Page 248 of 675

Accordingly, the motion is denied. However, only the derivative suit


consisting of the first cause of action will be taken cognizance of by this
Court.[10]

Oscar thereupon went to the CA on a petition for certiorari, prohibition,


and mandamus[11] and prayed that the RTC Order be annulled and set aside and that
the trial court be prohibited from continuing with the proceedings. The appellate
court affirmed the RTC Order and denied the petition in its Decision dated May 26,
2004. It likewise denied Oscars motion for reconsideration in a Resolution
dated October 21, 2004.

Petitioner now comes before us on appeal through a petition for review


on certiorari under Rule 45 of the Rules of Court.

ASSIGNMENT OF ERRORS

Petitioner Oscar presents the following points as conclusions the CA should have
made:

1. that the complaint is a mere nuisance or harassment suit that


should be dismissed under the Interim Rules of Procedure of Intra-
Corporate Controversies; and
2. that the complaint is not a bona fide derivative suit but is in fact in
the nature of a petition for settlement of estate; hence, it is outside
the jurisdiction of the RTC acting as a special commercial court.

Accordingly, he prays for the setting aside and annulment of the CA decision and
resolution, and the dismissal of Rodrigos complaint before the RTC.
Page 249 of 675

THE COURTS RULING

We find the petition meritorious.

The core question for our determination is whether the trial court, sitting as a special
commercial court, has jurisdiction over the subject matter of Rodrigos complaint. To
resolve it, we rely on the judicial principle that jurisdiction over the subject matter
of a case is conferred by law and is determined by the allegations of the complaint,
irrespective of whether the plaintiff is entitled to all or some of the claims asserted
therein.[12]

JURISDICTION OF SPECIAL COMMERCIAL COURTS

P.D. No. 902-A enumerates the cases over which the SEC (now the RTC acting as a
special commercial court) exercises exclusive jurisdiction:
SECTION 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission over
corporations, partnership, and other forms of associations
registered with it as expressly granted under existing laws and
decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:
a) Devices or schemes employed by
or any acts of the board of directors, business
associates, its officers or partners, amounting to
fraud and misrepresentation which may be
detrimental to the interest of the public and/or of
the stockholders, partners, members of
associations or organizations registered with the
Commission.
Page 250 of 675

b) Controversies arising out of intra-


corporate or partnership relations, between and
among stockholders, members, or associates;
between any or all of them and the corporation,
partnership or association of which they are
stockholders, members, or associates,
respectively; and between such corporation,
partnership or association and the State insofar as
it concerns their individual franchise or right to
exist as such entity; and
c) Controversies in the election or
appointment of directors, trustees, officers, or
managers of such corporations, partnerships, or
associations.

The allegations set forth in Rodrigos complaint principally invoke Section 5,


paragraphs (a) and (b) above as basis for the exercise of the RTCs special court
jurisdiction. Our focus in examining the allegations of the complaint shall therefore
be on these two provisions.

Fraudulent Devices and Schemes

The rule is that a complaint must contain a plain, concise, and direct statement of the
ultimate facts constituting the plaintiffs cause of action and must specify the relief
sought.[13]Section 5, Rule 8 of the Revised Rules of Court provides that in all
averments of fraud or mistake, the circumstances constituting fraud or mistake
must be stated with particularity.[14] These rules find specific application to
Section 5(a) of P.D. No. 902-A which speaks of corporate devices or schemes that
amount to fraud or misrepresentation detrimental to the public and/or to the
stockholders.
Page 251 of 675

In an attempt to hold Oscar responsible for corporate fraud, Rodrigo alleged in the
complaint the following:

3. This is a complaintto determine the shares of stock of the


deceased spouses Pedro and Anastacia Reyes that were
arbitrarily and fraudulently appropriated for himself
[herein petitioner Oscar] which were not collated and taken
into account in the partition, distribution, and/or settlement of
the estate of the deceased Spouses Pedro and Anastacia Reyes,
for which he should be ordered to account for all the income
from the time he took these shares of stock, and should now
deliver to his brothers and sisters their just and respective
shares with the corresponding equivalent amount of
P7,099,934.82 plus interest thereon from 1978 representing
his obligations to the Associated Citizens Bank that was paid
for his account by his late mother, Anastacia C. Reyes. This
amount was not collated or taken into account in the partition
or distribution of the estate of their late mother, Anastacia C.
Reyes.

3.1. Respondent Oscar C. Reyes, through other


schemes of fraud including misrepresentation,
unilaterally, and for his own benefit, capriciously
transferred and took possession and control of the
management of Zenith Insurance Corporation which is
considered as a family corporation, and other properties and
businesses belonging to Spouses Pedro and Anastacia Reyes.

xxxx

4.1. During the increase of capitalization of Zenith


Insurance Corporation, sometime in 1968, the property
Page 252 of 675

covered by TCT No. 225324 was illegally and fraudulently


used by respondent as a collateral.

xxxx

5. The complainant Rodrigo C. Reyes discovered


that by some manipulative scheme, the shareholdings of
their deceased mother, Doa Anastacia C. Reyes, shares of
stocks and [sic] valued in the corporate books at
P7,699,934.28, more or less, excluding interest and/or
dividends, had been transferred solely in the name of
respondent. By such fraudulent manipulations and
misrepresentation, the shareholdings of said respondent Oscar
C. Reyes abruptly increased to P8,715,637.00 [sic] and
becomes [sic] the majority stockholder of Zenith Insurance
Corporation, which portion of said shares must be distributed
equally amongst the brothers and sisters of the respondent
Oscar C. Reyes including the complainant herein.

xxxx

9.1 The shareholdings of deceased Spouses Pedro Reyes


and Anastacia C. Reyes valued at P7,099,934.28
were illegally and fraudulently transferred solely to the
respondents [herein petitioner Oscar] name and installed
himself as a majority stockholder of Zenith Insurance
Corporation [and] thereby deprived his brothers and sisters of
their respective equal shares thereof including complainant
hereto.
xxxx
Page 253 of 675

10.1 By refusal of the respondent to account of his [sic]


shareholdings in the company, he illegally and
fraudulently transferred solely in his name wherein [sic]
the shares of stock of the deceased Anastacia C. Reyes
[which] must be properly collated and/or distributed
equally amongst the children, including the complainant
Rodrigo C. Reyes herein, to their damage and prejudice.

xxxx

11.1 By continuous refusal of the respondent to account of his


[sic] shareholding with Zenith Insurance Corporation[,]
particularly the number of shares of stocks illegally and
fraudulently transferred to him from their deceased parents
Sps. Pedro and Anastacia Reyes[,] which are all subject for
collation and/or partition in equal shares among their children.
[Emphasis supplied.]

Allegations of deceit, machination, false pretenses, misrepresentation, and threats


are largely conclusions of law that, without supporting statements of the facts to
which the allegations of fraud refer, do not sufficiently state an effective cause of
action.[15] The late Justice Jose Feria, a noted authority in Remedial Law, declared
that fraud and mistake are required to be averred with particularity in order to enable
the opposing party to controvert the particular facts allegedly constituting such fraud
or mistake.[16]

Tested against these standards, we find that the charges of fraud against Oscar were
not properly supported by the required factual allegations. While the complaint
contained allegations of fraud purportedly committed by him, these allegations are
not particular enough to bring the controversy within the special commercial courts
Page 254 of 675

jurisdiction; they are not statements of ultimate facts, but are mere conclusions of
law: how and why the alleged appropriation of shares can be characterized as illegal
and fraudulent were not explained nor elaborated on.

Not every allegation of fraud done in a corporate setting or perpetrated by corporate


officers will bring the case within the special commercial courts jurisdiction. To fall
within this jurisdiction, there must be sufficient nexus showing that the corporations
nature, structure, or powers were used to facilitate the fraudulent device or
scheme. Contrary to this concept, the complaint presented a reverse situation. No
corporate power or office was alleged to have facilitated the transfer of the shares;
rather, Oscar, as an individual and without reference to his corporate personality,
was alleged to have transferred the shares of Anastacia to his name, allowing him to
become the majority and controlling stockholder of Zenith, and eventually, the
corporations President. This is the essence of the complaint read as a whole and is
particularly demonstrated under the following allegations:

5. The complainant Rodrigo C. Reyes discovered that


by some manipulative scheme, the shareholdings of their
deceased mother, Doa Anastacia C. Reyes, shares of stocks
and [sic] valued in the corporate books at P7,699,934.28, more
or less, excluding interest and/or dividends, had been
transferred solely in the name of respondent. By such
fraudulent manipulations and misrepresentation, the
shareholdings of said respondent Oscar C. Reyes abruptly
increased to P8,715,637.00 [sic] and becomes [sic] the
majority stockholder of Zenith Insurance
Corporation, which portion of said shares must be
distributed equally amongst the brothers and sisters of the
respondent Oscar C. Reyes including the complainant herein.

xxxx
Page 255 of 675

9.1 The shareholdings of deceased Spouses Pedro Reyes


and Anastacia C. Reyes valued at
P7,099,934.28 were illegally and fraudulently transferred
solely to the respondents [herein petitioner Oscar] name
and installed himself as a majority stockholder of
Zenith Insurance Corporation [and] thereby deprived his
brothers and sisters of their respective equal shares thereof
including complainant hereto. [Emphasis supplied.]

In ordinary cases, the failure to specifically allege the fraudulent acts does not
constitute a ground for dismissal since such defect can be cured by a bill of
particulars. In cases governed by the Interim Rules of Procedure on Intra-Corporate
Controversies, however, a bill of particulars is a prohibited pleading. [17] It is
essential, therefore, for the complaint to show on its face what are claimed to be the
fraudulent corporate acts if the complainant wishes to invoke the courts special
commercial jurisdiction.

We note that twice in the course of this case, Rodrigo had been given the opportunity
to study the propriety of amending or withdrawing the complaint, but he consistently
refused. The courts function in resolving issues of jurisdiction is limited to the
review of the allegations of the complaint and, on the basis of these allegations, to
the determination of whether they are of such nature and subject that they fall within
the terms of the law defining the courts jurisdiction. Regretfully, we cannot read into
the complaint any specifically alleged corporate fraud that will call for the exercise
of the courts special commercial jurisdiction. Thus, we cannot affirm the RTCs
assumption of jurisdiction over Rodrigos complaint on the basis of Section 5(a) of
P.D. No. 902-A.[18]

Intra-Corporate Controversy
Page 256 of 675

A review of relevant jurisprudence shows a development in the Courts approach in


classifying what constitutes an intra-corporate controversy. Initially, the main
consideration in determining whether a dispute constitutes an intra-corporate
controversy was limited to a consideration of the intra-corporate relationship
existing between or among the parties.[19] The types of relationships embraced under
Section 5(b), as declared in the case of Union Glass & Container Corp. v.
SEC,[20] were as follows:

a) between the corporation, partnership, or association and the


public;
b) between the corporation, partnership, or association and its
stockholders, partners, members, or officers;
c) between the corporation, partnership, or association and the
State as far as its franchise, permit or license to operate is
concerned; and
d) among the stockholders, partners, or associates
themselves. [Emphasis supplied.]

The existence of any of the above intra-corporate relations was sufficient to


confer jurisdiction to the SEC, regardless of the subject matter of the dispute. This
came to be known as the relationship test.

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve,
Inc.,[21] the Court introduced the nature of the controversy test. We declared in this
case that it is not the mere existence of an intra-corporate relationship that gives rise
to an intra-corporate controversy; to rely on the relationship test alone will divest the
regular courts of their jurisdiction for the sole reason that the dispute involves a
corporation, its directors, officers, or stockholders. We saw that there is no legal
sense in disregarding or minimizing the value of the nature of the transactions which
gives rise to the dispute.
Page 257 of 675

Under the nature of the controversy test, the incidents of that relationship must also
be considered for the purpose of ascertaining whether the controversy itself is intra-
corporate.[22] The controversy must not only be rooted in the existence of an intra-
corporate relationship, but must as well pertain to the enforcement of the parties
correlative rights and obligations under the Corporation Code and the internal and
intra-corporate regulatory rules of the corporation. If the relationship and its
incidents are merely incidental to the controversy or if there will still be conflict even
if the relationship does not exist, then no intra-corporate controversy exists.

The Court then combined the two tests and declared that jurisdiction should be
determined by considering not only the status or relationship of the parties, but also
the nature of the question under controversy.[23] This two-tier test was adopted in the
recent case of Speed Distribution, Inc. v. Court of Appeals:[24]
To determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the branches of
the RTC specifically designated by the Court to try and decide
such cases, two elements must concur: (a) the status or
relationship of the parties; and (2) the nature of the question
that is the subject of their controversy.
The first element requires that the controversy must arise
out of intra-corporate or partnership relations between any or
all of the parties and the corporation, partnership, or
association of which they are stockholders, members or
associates; between any or all of them and the corporation,
partnership, or association of which they are stockholders,
members, or associates, respectively; and between such
corporation, partnership, or association and the State insofar
as it concerns their individual franchises. The second element
requires that the dispute among the parties be intrinsically
connected with the regulation of the corporation. If the nature
of the controversy involves matters that are purely civil in
character, necessarily, the case does not involve an intra-
corporate controversy.
Page 258 of 675

Given these standards, we now tackle the question posed for our determination under
the specific circumstances of this case:

Application of the Relationship Test

Is there an intra-corporate relationship between the parties that would characterize


the case as an intra-corporate dispute?

We point out at the outset that while Rodrigo holds shares of stock in Zenith, he
holds them in two capacities: in his own right with respect to the 4,250 shares
registered in his name, and as one of the heirs of Anastacia Reyes with respect to the
136,598 shares registered in her name. What is material in resolving the issues of
this case under the allegations of the complaint is Rodrigos interest as an heir since
the subject matter of the present controversy centers on the shares of stocks
belonging to Anastacia, not on Rodrigos personally-owned shares nor on his
personality as shareholder owning these shares. In this light, all reference to shares
of stocks in this case shall pertain to the shareholdings of the deceased Anastacia
and the parties interest therein as her heirs.

Article 777 of the Civil Code declares that the successional rights are transmitted
from the moment of death of the decedent. Accordingly, upon Anastacias death, her
children acquired legal title to her estate (which title includes her shareholdings in
Zenith), and they are, prior to the estates partition, deemed co-owners
thereof.[25] This status as co-owners, however, does not immediately and necessarily
make them stockholders of the corporation. Unless and until there is compliance
with Section 63 of the Corporation Code on the manner of transferring shares, the
heirs do not become registered stockholders of the corporation. Section 63 provides:
Page 259 of 675

Section 63. Certificate of stock and transfer of shares. The


capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice-
president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be
issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner
or his attorney-in-fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid,
except as between the parties, until the transfer is
recorded in the books of the corporation so as to show the
names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates, and
the number of shares transferred. [Emphasis supplied.]

No shares of stock against which the corporation holds any


unpaid claim shall be transferable in the books of the
corporation.

Simply stated, the transfer of title by means of succession, though effective and valid
between the parties involved (i.e., between the decedents estate and her heirs), does
not bind the corporation and third parties. The transfer must be registered in the
books of the corporation to make the transferee-heir a stockholder entitled to
recognition as such both by the corporation and by third parties.[26]

We note, in relation with the above statement, that in Abejo v. Dela Cruz[27] and TCL
Sales Corporation v. Court of Appeals[28] we did not require the registration of the
transfer before considering the transferee a stockholder of the corporation (in effect
upholding the existence of an intra-corporate relation between the parties and
bringing the case within the jurisdiction of the SEC as an intra-corporate
controversy). A marked difference, however, exists between these cases and the
present one.
Page 260 of 675

In Abejo and TCL Sales, the transferees held definite and uncontested titles
to a specific number of shares of the corporation; after the transferee had
established prima facie ownership over the shares of stocks in question, registration
became a mere formality in confirming their status as stockholders. In the present
case, each of Anastacias heirs holds only an undivided interest in the shares. This
interest, at this point, is still inchoate and subject to the outcome of a settlement
proceeding; the right of the heirs to specific, distributive shares of inheritance will
not be determined until all the debts of the estate of the decedent are paid. In short,
the heirs are only entitled to what remains after payment of the decedents
debts;[29] whether there will be residue remains to be seen. Justice Jurado aptly puts
it as follows:

No succession shall be declared unless and until a liquidation


of the assets and debts left by the decedent shall have been
made and all his creditors are fully paid. Until a final
liquidation is made and all the debts are paid, the right of the
heirs to inherit remains inchoate. This is so because under our
rules of procedure, liquidation is necessary in order to
determine whether or not the decedent has left any liquid
assets which may be transmitted to his heirs.[30] [Emphasis
supplied.]

Rodrigo must, therefore, hurdle two obstacles before he can be considered a


stockholder of Zenith with respect to the shareholdings originally belonging to
Anastacia. First, he must prove that there are shareholdings that will be left to him
and his co-heirs, and this can be determined only in a settlement of the decedents
estate. No such proceeding has been commenced to date. Second, he must register
the transfer of the shares allotted to him to make it binding against the
corporation. He cannot demand that this be done unless and until he has established
his specific allotment (and prima facie ownership) of the shares. Without the
settlement of Anastacias estate, there can be no definite partition and distribution of
the estate to the heirs. Without the partition and distribution, there can be no
registration of the transfer. And without the registration, we cannot consider the
transferee-heir a stockholder who may invoke the existence of an intra-corporate
Page 261 of 675

relationship as premise for an intra-corporate controversy within the jurisdiction of


a special commercial court.

In sum, we find that insofar as the subject shares of stock (i.e., Anastacias shares)
are concerned Rodrigo cannot be considered a stockholder of Zenith. Consequently,
we cannot declare that an intra-corporate relationship exists that would serve as basis
to bring this case within the special commercial courts jurisdiction under Section
5(b) of PD 902-A, as amended. Rodrigos complaint, therefore, fails the relationship
test.

Application of the Nature of Controversy Test

The body rather than the title of the complaint determines the nature of an
action.[31] Our examination of the complaint yields the conclusion that, more than
anything else, the complaint is about the protection and enforcement of successional
rights. The controversy it presents is purely civil rather than corporate, although it is
denominated as a complaint for accounting of all corporate funds and assets.

Contrary to the findings of both the trial and appellate courts, we read only one cause
of action alleged in the complaint. The derivative suit for accounting of the funds
and assets of the corporation which are in the control, custody, and/or possession of
the respondent [herein petitioner Oscar] does not constitute a separate cause of action
but is, as correctly claimed by Oscar, only an incident to the action for determination
of the shares of stock of deceased spouses Pedro and Anastacia Reyes allegedly
taken by respondent, its accounting and the corresponding delivery of these shares
to the parties brothers and sisters. There can be no mistake of the relationship
between the accounting mentioned in the complaint and the objective of partition
and distribution when Rodrigo claimed in paragraph 10.1 of the complaint that:
Page 262 of 675

10.1 By refusal of the respondent to account of [sic] his


shareholdings in the company, he illegally and fraudulently
transferred solely in his name wherein [sic] the shares of stock
of the deceased Anastacia C. Reyes [which] must be properly
collated and/or distributed equally amongst the children
including the complainant Rodrigo C. Reyes herein to their
damage and prejudice.

We particularly note that the complaint contained no sufficient allegation that


justified the need for an accounting other than to determine the extent of Anastacias
shareholdings for purposes of distribution.

Another significant indicator that points us to the real nature of the complaint are
Rodrigos repeated claims of illegal and fraudulent transfers of Anastacias shares by
Oscar to the prejudice of the other heirs of the decedent; he cited these allegedly
fraudulent acts as basis for his demand for the collation and distribution of
Anastacias shares to the heirs.These claims tell us unequivocally that the present
controversy arose from the parties relationship as heirs of Anastacia and not as
shareholders of Zenith. Rodrigo, in filing the complaint, is enforcing his rights as a
co-heir and not as a stockholder of Zenith. The injury he seeks to remedy is one
suffered by an heir (for the impairment of his successional rights) and not by the
corporation nor by Rodrigo as a shareholder on record.

More than the matters of injury and redress, what Rodrigo clearly aims to accomplish
through his allegations of illegal acquisition by Oscar is the distribution of
Anastacias shareholdings without a prior settlement of her estate an objective that,
by law and established jurisprudence, cannot be done. The RTC of Makati, acting as
a special commercial court, has no jurisdiction to settle, partition, and distribute the
estate of a deceased. A relevant provision Section 2 of Rule 90 of the Revised Rules
of Court that contemplates properties of the decedent held by one of the heirs
declares:
Page 263 of 675

Questions as to advancement made or alleged to have been


made by the deceased to any heir may be heard and
determined by the court having jurisdiction of the estate
proceedings; and the final order of the court thereon shall be
binding on the person raising the questions and on the heir.
[Emphasis supplied.]

Worth noting are this Courts statements in the case of Natcher v. Court of
Appeals:[32]

Matters which involve settlement and distribution of the


estate of the decedent fall within the exclusive province of
the probate court in the exercise of its limited jurisdiction.

xxxx

It is clear that trial courts trying an ordinary action cannot


resolve to perform acts pertaining to a special
proceeding because it is subject to specific prescribed rules.
[Emphasis supplied.]

That an accounting of the funds and assets of Zenith to determine the extent and
value of Anastacias shareholdings will be undertaken by a probate court and not by
a special commercial court is completely consistent with the probate courts limited
jurisdiction. It has the power to enforce an accounting as a necessary means to its
authority to determine the properties included in the inventory of the estate to be
administered, divided up, and distributed. Beyond this, the determination of title or
Page 264 of 675

ownership over the subject shares (whether belonging to Anastacia or Oscar) may
be conclusively settled by the probate court as a question of collation or
advancement. We had occasion to recognize the courts authority to act on questions
of title or ownership in a collation or advancement situation in Coca v.
Pangilinan[33] where we ruled:

It should be clarified that whether a particular matter should be resolved


by the Court of First Instance in the exercise of its general jurisdiction
or of its limited probate jurisdiction is in reality not a jurisdictional
question. In essence, it is a procedural question involving a mode of
practice "which may be waived."

As a general rule, the question as to title to property should not be


passed upon in the testate or intestate proceeding. That question should
be ventilated in a separate action. That general rule has qualifications
or exceptions justified by expediency and convenience.

Thus, the probate court may provisionally pass upon in an intestate or


testate proceeding the question of inclusion in, or exclusion from, the
inventory of a piece of property without prejudice to its final
determination in a separate action.

Although generally, a probate court may not decide a question of


title or ownership, yet if the interested parties are all heirs, or the
question is one of collation or advancement, or the parties consent to
the assumption of jurisdiction by the probate court and the rights of
third parties are not impaired, the probate court is competent to
decide the question of ownership. [Citations omitted. Emphasis
supplied.]

In sum, we hold that the nature of the present controversy is not one which may be
classified as an intra-corporate dispute and is beyond the jurisdiction of the special
Page 265 of 675

commercial court to resolve. In short, Rodrigos complaint also fails the nature of the
controversy test.

DERIVATIVE SUIT

Rodrigos bare claim that the complaint is a derivative suit will not suffice to confer
jurisdiction on the RTC (as a special commercial court) if he cannot comply with the
requisites for the existence of a derivative suit. These requisites are:

a. the party bringing suit should be a shareholder during the


time of the act or transaction complained of, the number of
shares not being material;
b. the party has tried to exhaust intra-corporate remedies, i.e.,
has made a demand on the board of directors for the
appropriate relief, but the latter has failed or refused to heed
his plea; and
c. the cause of action actually devolves on the corporation;
the wrongdoing or harm having been or being caused to the
corporation and not to the particular stockholder bringing the
suit.[34]

Based on these standards, we hold that the allegations of the present complaint do
not amount to a derivative suit.

First, as already discussed above, Rodrigo is not a shareholder with respect to the
shareholdings originally belonging to Anastacia; he only stands as a transferee-heir
whose rights to the share are inchoate and unrecorded. With respect to his own
individually-held shareholdings, Rodrigo has not alleged any individual cause or
basis as a shareholder on record to proceed against Oscar.
Page 266 of 675

Second, in order that a stockholder may show a right to sue on behalf of the
corporation, he must allege with some particularity in his complaint that he has
exhausted his remedies within the corporation by making a sufficient demand upon
the directors or other officers for appropriate relief with the expressed intent to sue
if relief is denied.[35]Paragraph 8 of the complaint hardly satisfies this requirement
since what the rule contemplates is the exhaustion of remedies within the corporate
setting:
8. As members of the same family, complainant
Rodrigo C. Reyes has resorted [to] and exhausted all legal
means of resolving the dispute with the end view of amicably
settling the case, but the dispute between them ensued.

Lastly, we find no injury, actual or threatened, alleged to have been done to the
corporation due to Oscars acts. If indeed he illegally and fraudulently transferred
Anastacias shares in his own name, then the damage is not to the corporation but to
his co-heirs; the wrongful transfer did not affect the capital stock or the assets of
Zenith. As already mentioned, neither has Rodrigo alleged any particular cause or
wrongdoing against the corporation that he can champion in his capacity as a
shareholder on record.[36]

In summary, whether as an individual or as a derivative suit, the RTC sitting as


special commercial court has no jurisdiction to hear Rodrigos complaint since what
is involved is the determination and distribution of successional rights to the
shareholdings of Anastacia Reyes. Rodrigos proper remedy, under the
circumstances, is to institute a special proceeding for the settlement of the estate of
the deceased Anastacia Reyes, a move that is not foreclosed by the dismissal of his
present complaint.

WHEREFORE, we hereby GRANT the petition and REVERSE the decision of


the Court of Appeals dated May 26, 2004 in CA-G.R. SP No. 74970. The complaint
before the Regional Trial Court, Branch 142, Makati, docketed as Civil Case No.
00-1553, is ordered DISMISSED for lack of jurisdiction.
Page 267 of 675

SO ORDERED.

LEGASPI TOWERS 300, INC., G.R. No. 170783


LILIA MARQUINEZ
PALANCA, ROSANNA D. IMAI,
GLORIA DOMINGO and RAY Present:
VINCENT,
Petitioners,
PERALTA, J., Acting Chairperson,*
- versus - BERSAMIN,**
ABAD,
AMELIA P. MUER, SAMUEL M. VILLARAMA, JR.,*** and
TANCHOCO, ROMEO PERLAS-BERNABE, JJ.
TANKIANG, RUDEL
PANGANIBAN, DOLORES
AGBAYANI, ARLENEDAL A. Promulgated:
YASUMA, GODOFREDO M.
CAGUIOA and EDGARDO M. June 18, 2012
SALANDANAN,
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:
Page 268 of 675

This is a petition for review on certiorari of the Court of Appeals


Decision[1] dated July 22, 2005 in CA-G.R. CV No. 87684, and its
Resolution[2] dated November 24, 2005, denying petitioners motion for
reconsideration.
The Court of Appeals held that Judge Antonio I. De Castro of the Regional
Trial Court (RTC) of Manila, Branch 3, did not commit grave abuse of discretion in
issuing the Orders dated July 21, 2004 and September 24, 2004 in Civil Case No.
04-109655, denying petitioners Motion to Admit Second Amended Complaint.

The facts, as stated by the Court of Appeals, are as follows:

Pursuant to the by-laws of Legaspi Towers 300, Inc., petitioners Lilia


Marquinez Palanca, Rosanna D. Imai, Gloria Domingo and Ray Vincent, the
incumbent Board of Directors, set the annual meeting of the members of the
condominium corporation and the election of the new Board of Directors for the
years 2004-2005 on April 2, 2004 at 5:00 p.m. at the lobby of Legaspi Towers 300,
Inc.

Out of a total number of 5,723 members who were entitled to vote, 1,358 were
supposed to vote through their respective proxies and their votes were critical in
determining the existence of a quorum, which was at least 2,863 (50% plus 1). The
Committee on Elections of Legaspi Towers 300, Inc., however, found most of the
proxy votes, at its face value, irregular, thus, questionable; and for lack of time to
authenticate the same, petitioners adjourned the meeting for lack of quorum.
However, the group of respondents challenged the adjournment of the
meeting. Despite petitioners' insistence that no quorum was obtained during the
annual meeting held on April 2, 2004, respondents pushed through with the
scheduled election and were elected as the new Board of Directors and officers
of Legaspi Towers 300, Inc. Subsequently, they submitted a General Information
Sheet to the Securities and Exchange Commission (SEC) with the following new set
of officers: Amelia P. Muer, President; Samuel M. Tanchoco, Internal Vice
President; Romeo V. Tankiang, External Vice-President; Rudel H. Panganiban,
Secretary; Dolores B. Agbayani, Assistant Secretary; Arlenedal A. Yasuma,
Treasurer; Godofredo M. Caguioa, Assistant Treasurer; and Edgardo M.
Salandanan, Internal Auditor.
Page 269 of 675

On April 13, 2004, petitioners filed a Complaint for the Declaration of Nullity
of Elections with Prayers for the lssuance of Temporary Restraining Orders and
Writ of Preliminary Injunction and Damages against respondents with the RTC of
Manila. Before respondents could file an Answer to the
original Complaint, petitioners filed an Amended Complaint, which was admitted by
the RTC in an Order dated April 14, 2004.

On April 20, 2004, before respondents could submit an Answer to


the Amended Complaint, petitioners again filed an Urgent Ex-Parte Motion to
Admit Second Amended Complaint and for the lssuance of Ex-Parte Temporary
Restraining Order Effective only for Seventy-Two (72) Hours. It was stated in the
said pleading that the case was raffled to Branch 24, but Presiding Judge Antonio
Eugenio, Jr. inhibited himself from handling the case; and when the case was
assigned to Branch 46, Presiding Judge Artemio S. Tipon also inhibited himself from
the case.

On April 21, 2004, Executive Judge Enrico A. Lanzanas of the RTC of Manila
acted on the Motion for the Issuance of an Ex Parte Temporary Restraining Order,
and issued an Order disposing, thus:

WHEREFORE, pursuant to administrative Circular No. 20-


95 of the Supreme Court, a seventy-two (72) hour Temporary
Restraining Order is hereby issued, enjoining defendants from taking
over management, or to maintain a status quo, in order to prevent
further irreparable damages and prejudice to the corporation, as day-to-
day activities will be disrupted and will be paralyzed due to the legal
controversy.[3]

On the same date, April 21, 2004, respondents filed their Answer[4] to
the Amended Complaint, alleging that the election on April 2, 2004 was lawfully
conducted. Respondents cited the Report[5] of SEC Counsel Nicanor P. Patricio, who
was ordered by the SEC to attend the annual meeting of Legaspi Towers 300, Inc.
Page 270 of 675

on April 2, 2004. Atty. Patricio stated in his Report that at 5:40 p.m. of April 2, 2004,
a representative of the Board of the condominium corporation stated that the
scheduled elections could not proceed because the Election Committee was not able
to validate the authenticity of the proxies prior to the election due to limited time
available as the submission was made only the day before. Atty. Patricio noted that
the Board itself fixed the deadline for submission of proxies at 5:00 p.m. of April 1,
2004. One holder of proxy stood up and questioned the motives of the Board in
postponing the elections. The Board objected to this and moved for a declaration of
adjournment. There was an objection to the adjournment, which was ignored by the
Board. When the Board adjourned the meeting despite the objections of the unit
owners, the unit owners who objected to the adjournment gathered themselves at the
same place of the meeting and proceeded with the meeting. The attendance was
checked from among the members who stayed at the meeting. Proxies were counted
and recorded, and there was a declaration of a quorum out of a total of 5,721 votes,
2,938 were present either in person or proxy. Thereafter, ballots were prepared,
proxies were counterchecked with the number of votes entitled to each unit owner,
and then votes were cast. At about 9:30 p.m., canvassing started, and by 11:30 p.m.,
the newly-elected members of the Board of Directors for the years 2004-2005 were
named.

Respondents contended that from the proceedings of the election reported by


SEC representative, Atty. Patricio, it was clear that the election held on April 2,
2004 was legitimate and lawful; thus, they prayed for the dismissal of the complaint
for lack cause of action against them.

This case was scheduled to be re-raffled to regular courts on April 22, 2004,
and was assigned to Judge Antonio I. De Castro of the RTC of Manila, Branch 3
(trial court).

On April 26, 2004, the trial court conducted a hearing on the injunction sought
by petitioners, and issued an Order clarifying that the TRO issued by Executive
Judge Enrico A. Lanzanas, enjoining respondents from taking over management,
was not applicable as the current Board of Directors (respondents) had actually
assumed management of the corporation. The trial court stated that the status
Page 271 of 675

quo mentioned in the said TRO shall mean that the current board of directors shall
continue to manage the affairs of the condominium corporation, but the court shall
monitor all income earned and expenses incurred by the corporation. The trial court
stated:
Precisely this complaint seeks to annul the election of the Board
due to alleged questionable proxy votes which could not have produced
a quorum. As such, there is nothing to enjoin and so injunction shall
fail. As an answer has been filed, the case is ripe for pre-trial and the
parties are directed to file their pre-trial briefs by May 3, 2004.

As plaintiffs second amended complaint is admitted by the


Court, defendants are given up to May 3, 2004 to file a comment
thereto. In the meantime, the banks and other persons & entities are
advised to recognize the Board headed by its president, Amelia
Muer. All transactions made by the Board and its officers for the
corporation are considered legal for all intents and purposes.[6]

On May 3, 2004, respondents filed a Comment on the Motion to Amend


Complaint, praying that the name of Legaspi Towers 300, Inc., as party-plaintiff in
the Second Amended Complaint, be deleted as the said inclusion by petitioners was
made without the authority of the current Board

of Directors, which had been recognized by the trial court in its Order dated April
26, 2004.

During the pre-trial conference held on July 21, 2004, the trial court resolved
various incidents in the case and other issues raised by the contending parties. One
of the incidents acted upon by the trial court was petitioners' motion to amend
complaint to implead Legaspi Towers 300, Inc. as plaintiff, which motion was
denied with the issuance of two Orders both dated July 21, 2004. The first
Order[7] held that the said motion could not be admitted for being improper, thus:

xxxx
On plaintiffs motion to admit amended complaint (to include
Legaspi Towers 300, Inc. as plaintiff), the Court rules to deny the
motion for being improper. (A separate Order of even date is issued.)
Page 272 of 675

As prayed for, movants are given 10 days from today to file a motion
for reconsideration thereof, while defendants are given 10 days from
receipt thereof to reply.[8]

The second separate Order,[9] also dated July 21, 2004, reads:

This resolves plaintiffs motion to amend complaint to include


Legaspi Towers 300, Inc. as party-plaintiff and defendants comment
thereto. Finding no merit therein and for the reasons stated in the
comment, the motion is hereby DENIED.

Petitioners filed a Motion for Reconsideration of the Orders dated July 21, 2004. In
the Order[10] dated September 24, 2004, the trial court denied the motion for
reconsideration for lack of merit.

Petitioners filed a petition for certiorari with the Court of Appeals alleging
that the trial court gravely abused its discretion amounting to lack or excess of
jurisdiction in issuing the Orders dated July 21, 2004 and September 24, 2004, and
praying that judgment be rendered annulling the said Orders and directing RTC
Judge De Castro to admit their Second Amended Complaint.

In a Decision dated July 22, 2005, the Court of Appeals dismissed the petition
for lack of merit. It held that RTC Judge De Castro did not commit grave abuse of
discretion in denying petitioners' Motion To Admit Second Amended Complaint.

The Court of Appeals stated that petitioners complaint sought to nullify


the election of the Board of Directors held on April 2, 2004, and to protect and
enforce their individual right to vote. The appellate court held that as the right to
vote is a personal right of a stockholder of a corporation, such right can only be
enforced through a direct action; hence, Legaspi Towers 300, Inc. cannot be
impleaded as plaintiff in this case.

Petitioners motion for reconsideration was denied by the Court of Appeals in


a Resolution dated November 24, 2005.
Page 273 of 675

Petitioners filed this petition raising the following issues:


I
THE HONORABLE COURT OF APPEALS ERRED IN
RESOLVING THAT PUBLIC RESPONDENT-APPELLEE DID
NOT COMMIT ANY WHIMSICAL, ARBITRARY AND
OPPRESSIVE EXERCISE OF JUDICIAL AUTHORITY WHEN
THE LATTER REVERSED HIS EARLIER RULING ALREADY
ADMITTING THE SECOND AMENDED COMPLAINT OF
PETITIONERS-APPELLANTS.

II
THERE IS NO LEGAL BASIS FOR THE HONORABLE
COURT OF APPEALS TO RESOLVE THAT PETITIONERS-
APPELLANTS HAVE NO RIGHT AS BOARD OF DIRECTORS TO
BRING AN ACTION IN BEHALF OF LEGASPI TOWERS 300, INC.

III
THERE IS NO LEGAL BASIS FOR THE HONORABLE
COURT OF APPEALS TO RESOLVE THAT THE ELECTIONS
CONDUCTED IN LEGASPI TOWERS 300, INC. FOR THE
PERIOD OF 2005 TO 2006 HAVE RENDERED THE ISSUE IN
CIVIL CASE NO. 04-10655 MOOT AND ACADEMIC.[11]

Petitioners contend that the Court of Appeals erred in not finding that RTC
Judge Antonio I. De Castro committed grave abuse of discretion amounting to lack
or excess of jurisdiction in denying the admission of the Second Amended
Complaint in the Orders dated July 21, 2004 and September 24, 2004, despite the
fact that he had already ordered its admission in a previous Order dated April 26,
2004.

Petitioners contention is unmeritorious.


Page 274 of 675

It is clear that in the Orders dated July 21, 2004, the trial court did not admit
the Second Amended Complaint wherein petitioners made the condominium
corporation, Legaspi Towers 300, Inc., the party-plaintiff. In the Order dated
September 24, 2004, denying petitioners motion for reconsideration of the Orders
dated July 21, 2004, the RTC explained its action, thus:

x x x The word admitted in the 3rd paragraph of the Order dated April
26, 2004 should read received for which defendants were told to
comment thereon as an answer has been filed. It was an oversight of the
clerical error in said Order.

The Order of July 21, 2004 states amended complaint in the


rd
3 paragraph thereof and so it does not refer to the second amended
complaint. The amended complaint was admitted by the court of origin
Br. 24 in its Order of April 14, 2004 as there was no responsive
pleading yet.
Nonetheless, admission of the second amended complaint is
improper. Why should Legaspi Towers 300, Inc. x x x be included as
party-plaintiff when defendants are members thereof too like plaintiffs.
Both parties are deemed to be acting in their personal capacities as they
both claim to be the lawful board of directors. The motion for
reconsideration for the admission of the second amended complaint is
hereby DENIED.[12]

The courts have the inherent power to amend and control their processes and
orders so as to make them conformable to law and justice.[13] A judge has an inherent
right, while his judgment is still under his control, to correct errors, mistakes, or
injustices.[14]

Next, petitioners state that the Court of Appeals seems to be under the
impression that the action instituted by them is one brought forth solely by way of a
derivative suit. They clarified that the inclusion of Legaspi Towers 300, Inc. as a
party-plaintiff in the Second Amended Complaint was, first and foremost, intended
as a direct action by the corporation acting through them (petitioners) as the
reconstituted Board of Directors of Legaspi Towers 300, Inc. Petitioners allege that
their act of including the corporation as party-plaintiff is consistent with their
Page 275 of 675

position that the election conducted by respondents was invalid; hence, petitioners,
under their by-laws, could reconstitute themselves as the Board of Directors of
Legaspi Towers 300, Inc. in a hold-over capacity for the succeeding term. By so
doing, petitioners had the right as the rightful Board of Directors to bring the action
in representation of Legaspi Towers 300, Inc. Thus, the Second Amended Complaint
was intended by the petitioners as a direct suit by the corporation joined in by the
petitioners to protect and enforce their common rights.

Petitioners contend that Legaspi Towers 300, Inc. is a real party-in- interest
as it stands to be affected the most by the controversy, because it involves the
determination of whether or not the corporations by-laws was properly carried out
in the meeting held on April 2, 2004, when despite the adjournment of the meeting
for lack of quorum, the elections were still conducted. Although petitioners admit
that the action involves their right to vote, they argue that it also involves the right
of the condominium corporation to be managed and run by the duly-elected Board
of Directors, and to seek redress against those who wrongfully occupy positions of
the corporation and who may mismanage the corporation.

Petitioners argument is unmeritorious.

The Court notes that in the Amended Complaint, petitioners as plaintiffs


stated that they are the incumbent reconstituted Board of Directors of Legaspi
Towers 300, Inc., and that defendants, herein respondents, are the newly-elected
members of the Board of Directors; while in the Second Amended Complaint, the
plaintiff is Legaspi Towers 300, Inc., represented by petitioners as the allegedly
incumbent reconstituted Board of Directors of Legaspi Towers 300, Inc.

The Second Amended Complaint states who the plaintiffs are, thus:

1. That the plaintiffs are: LEGASPI TOWERS 300, INC., non-


stock corporation xxx duly represented by the incumbent
reconstituted Board of Directors of Legaspi Towers 300, Inc.,
namely: ELIADORA FE BOTE VERA xxx, as President; BRUNO
C. HAMAN xxx, as Director; LILY MARQUINEZ PALANCA
xxx, as Secretary; ROSANNA DAVID IMAI xxx, as Treasurer; and
Page 276 of 675

members of the Board of Directors, namely: ELIZABETH


GUERRERO xxx, GLORIA DOMINGO xxx, and RAY
VINCENT.[15]

The Court agrees with the Court of Appeals that the Second Amended
Complaint is meant to be a derivative suit filed by petitioners in behalf of the
corporation. The Court of Appeals stated in its Decision that petitioners justified the
inclusion of Legaspi Towers 300, Inc. as plaintiff in Civil Case No. 0410655 by
invoking the doctrine of derivative suit, as petitioners specifically argued, thus:

xxxx

x x x [T]he sudden takeover by private respondents of the management


of Legaspi Towers 300, Inc. has only proven the rightfulness of
petitioners move to include Legaspi Towers 300, Inc. as party-plaintiff.
This is because every resolution passed by private respondents sitting
as a board result[s] in violation of Legaspi Towers 300, Inc.s right to be
managed and represented by herein petitioners.

In short, the amendment of the complaint [to include] Legaspi


Towers 300, Inc. was done in order to protect the interest and enforce
the right of the Legaspi [Towers 300,] Inc. to be administered and
managed [by petitioners] as the duly constituted Board of
Directors. This is no different from and may in fact be considered
as a DERIVATIVE SUIT instituted by an individual stockholder
against those controlling the corporation but is being instituted in
the name of and for the benefit of the corporation whose right/s are
being violated.[16]
Is a derivative suit proper in this case?

Cua, Jr. v. Tan[17] differentiates a derivative suit and an individual/class suit


as follows:

A derivative suit must be differentiated from individual and


representative or class suits, thus:
Page 277 of 675

Suits by stockholders or members of a corporation


based on wrongful or fraudulent acts of directors or other
persons may be classified into individual suits, class suits,
and derivative suits. Where a stockholder or member is
denied the right of inspection, his suit would
be individual because the wrong is done to
him personally and not to the other stockholders or the
corporation. Where the wrong is done to a group of
stockholders, as where preferred stockholders' rights are
violated, a class or representative suit will be proper for
the protection of all stockholders belonging to the same
group. But where the acts complained of constitute a
wrong to the corporation itself, the cause of action
belongs to the corporation and not to the individual
stockholder or member. Although in most every case of
wrong to the corporation, each stockholder is necessarily
affected because the value of his interest therein would be
impaired, this fact of itself is not sufficient to give him an
individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself
sue the wrongdoer. Otherwise, not only would the theory
of separate entity be violated, but there would be
multiplicity of suits as well as a violation of the priority
rights of creditors. Furthermore, there is the difficulty of
determining the amount of damages that should be paid to
each individual stockholder.

However, in cases of mismanagement where


the wrongful acts are committed by the directors or
trustees themselves, a stockholder or member may find
that he has no redress because the former are vested by law
with the right to decide whether or not the corporation
should sue, and they will never be willing to sue
themselves. The corporation would thus be helpless to
seek remedy. Because of the frequent occurrence of
such a situation, the common law gradually recognized
the right of a stockholder to sue on behalf of a
corporation in what eventually became known as
a "derivative suit." It has been proven to be an effective
Page 278 of 675

remedy of the minority against the abuses of


management. Thus, an individual stockholder is
permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect
or vindicate corporate rights, whenever officials of the
corporation refuse to sue or are the ones to be sued or
hold the control of the corporation. In such actions, the
suing stockholder is regarded as the nominal party,
with the corporation as the party-in- interest.[18]

Since it is the corporation that is the real party-in-interest in a derivative suit,


then the reliefs prayed for must be for the benefit or interest of the
corporation.[19] When the reliefs prayed for do not pertain to the corporation, then it
is an improper derivative suit.[20]

The requisites for a derivative suit are as follows:

a) the party bringing suit should be a shareholder as of the time of the


act or transaction complained of, the number of his shares not being
material;

b) he has tried to exhaust intra-corporate remedies, i.e., has made a


demand on the board of directors for the appropriate relief but the
latter has failed or refused to heed his plea; and

c) the cause of action actually devolves on the corporation, the


wrongdoing or harm having been, or being caused to the corporation
and not to the particular stockholder bringing the suit.[21]

In this case, petitioners, as members of the Board of Directors of the condominium


corporation before the election in question, filed a complaint against the newly-
elected members of the Board of Directors for the years 2004-2005, questioning the
validity of the election held on April 2, 2004, as it was allegedly marred by lack of
quorum, and praying for the nullification of the said election.

As stated by the Court of Appeals, petitioners complaint seek to nullify the


said election, and to protect and enforce their individual right to vote. Petitioners
Page 279 of 675

seek the nullification of the election of the Board of Directors for the years 2004-
2005, composed of herein respondents, who pushed through with the election even
if petitioners had adjourned the meeting allegedly due to lack of quorum. Petitioners
are the injured party, whose rights to vote and to be voted upon were directly affected
by the election of the new set of board of directors. The party-in-interest are the
petitioners as stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which did not have the
right to vote. Hence, the complaint for nullification of the election is a direct
action by petitioners, who were the members of the Board of Directors of the
corporation before the election, against respondents, who are the newly-elected
Board of Directors. Under the circumstances, the derivative suit filed by petitioners
in behalf of the condominium corporation in the Second Amended Complaint is
improper.

The stockholders right to file a derivative suit is not based on any express
provision of The Corporation Code, but is impliedly recognized when the law makes
corporate directors or officers liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties,[22] which is not the issue in this
case.

Further, petitioners change of argument before this Court, asserting that the
Second Amended Complaint is a direct action filed by the corporation, represented
by the petitioners as the incumbent Board of Directors, is an
afterthought, and lacks merit, considering that the newly-elected Board of Directors
had assumed their function to manage corporate affairs.[23]
In fine, the Court of Appeals correctly upheld the Orders of the trial court
dated July 21, 2004 and September 24, 2004 denying petitioners Motion to Admit
Second Amended Complaint.
Lastly, petitioners contend that the Court of Appeals erred in resolving that
the recent elections conducted by Legaspi Towers, 300, Inc. have rendered the issue
raised viathe special civil action for certiorari before the appellate court moot and
academic.

The Court of Appeals, in its Resolution dated November 24, 2005, stated:
Page 280 of 675

x x x [T]he election of the corporations new set of directors for the years
2005-2006 has, finally, rendered the petition at bench moot and
academic. As correctly argued by private respondents, the nullification
of the orders assailed by petitioners would, therefore, be of little or no
practical and legal purpose.[24]

The statement of the Court of Appeals is correct.

Petitioners question the validity of the election of the Board of Directors for
the years 2004-2005, which election they seek to nullify in Civil Case No. 04-
109655.However, the valid election of a new set of Board of Directors for the years
2005-2006 would, indeed, render this petition moot and academic.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 87684, dated July 22, 2005, and its Resolution dated
November 24, 2005 are AFFIRMED.

Costs against petitioners.

SO ORDERED.

G.R. No. 201675 June 19, 2013

JUANITO ANG, for and in behalf of SUNRISE MARKETING (BACOLOD),


INC.,* Petitioner,
vs.
SPOUSES ROBERTO and RACHEL ANG, Respondents.

DECISION

CARPIO, J.:
Page 281 of 675

The Case

This petition for review1 assails the Decision2 of the Court of Appeals-Cebu (CA-
Cebu) dated 20 September 2011 in CA-G.R. SP No. 05546. The CA-Cebu reversed
and set aside the Order3 of the Regional Trial Court, Branch 53, Bacolod City (RTC
Bacolod) dated 27 September 2010 in Commercial Court Case No. 09-070 entitled
Sunrise Marketing (Bacolod), Inc., represented by Juanita Ang -v: Spouses Roberto
and Rachel Ang.

The Facts

Sunrise Marketing (Bacolod), Inc. (SMBI) is a duly registered corporation owned


by the Ang family.4 Its current stockholders and their respective stockholdings are
as follows:5

Stockholder Number of Shares

Juanito Ang 8,750

Anecita Ang 1,250

Jeannevie Ang 2,500

Roberto Ang 8,750

Rachel Ang 3,750

Total 25,000

Juanito Ang (Juanito) and Roberto Ang (Roberto) are siblings. Anecita Limoco-Ang
(Anecita) is Juanitos wife and Jeannevie is their daughter. Roberto was elected
President of SMBI, while Juanito was elected as its Vice President. Rachel Lu-Ang
(Rachel) and Anecita are SMBIs Corporate Secretary and Treasurer, respectively.

On 31 July 1995, Nancy Ang (Nancy), the sister of Juanito and Roberto, and her
husband, Theodore Ang (Theodore), agreed to extend a loan to settle the obligations
of SMBI and other corporations owned by the Ang family, specifically Bayshore
Page 282 of 675

Aqua Culture Corporation, Oceanside Marine Resources and JR Aqua


Venture.6Nancy and Theodore issued a check in the amount of $1,000,000.00
payable to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or Rachel
Ang." Nancy was a former stockholder of SMBI, but she no longer appears in
SMBIs General Information Sheets as early as 1996.7 Nancy and Theodore are now
currently residing in the United States. There was no written loan agreement, in view
of the close relationship between the parties. Part of the loan was also used to
purchase real properties for SMBI, for Juanito, and for Roberto.8

On 22 December 2005, SMBI increased its authorized capital stock


to P10,000,000.00. The Certificate of Increase of Capital Stock was signed by
Juanito, Anecita, Roberto, and Rachel as directors of SMBI.9 Juanito claimed,
however, that the increase of SMBIs capital stock was done in contravention of the
Corporation Code.10According to Juanito, when he and Anecita left for Canada:

x x x Sps. Roberto and Rachel Ang took over the active management of [SMBI].
Through the employment of sugar coated words, they were able to successfully
manipulate the stocks sharings between themselves at 50-50 under the condition that
the procedures mandated by the Corporation Code on increase of capital stock be
strictly observed (valid Board Meeting). No such meeting of the Board to increase
capital stock materialized. It was more of an accommodation to buy peace x x x. 11

Juanito claimed that payments to Nancy and Theodore ceased sometime after 2006.
On 24 November 2008, Nancy and Theodore, through their counsel here in the
Philippines, sent a demand letter to "Spouses Juanito L. Ang/Anecita L. Ang and
Spouses Roberto L. Ang/Rachel L. Ang" for payment of the principal amounting to
$1,000,000.00 plus interest at ten percent (10%) per annum, for a total of
$2,585,577.37 within ten days from receipt of the letter. 12 Roberto and Rachel then
sent a letter to Nancy and Theodores counsel on 5 January 2009, saying that they
are not complying with the demand letter because they have not personally
contracted a loan from Nancy and Theodore.

On 8 January 2009, Juanito and Anecita executed a Deed of Acknowledgment and


Settlement Agreement (Settlement Agreement) and an Extra-Judicial Real Estate
Mortgage (Mortgage). Under the foregoing instruments, Juanito and Anecita
admitted that they, together with Roberto and Rachel, obtained a loan from Nancy
and Theodore for $1,000,000.00 on 31 July 1995 and such loan shall be secured by:
Page 283 of 675

a) Juanito and Anecitas fifty percent share over a parcel of land registered in
the name of SMBI;

b) a parcel of land registered in the name of Juanito Ang;

c) Juanitos fifty percent share in 7 parcels of land registered in his and


Robertos name;

d) a parcel of land registered in the name of Roberto;

e) a parcel of land registered in the name of Rachel; and

f) Roberto and Rachels fifty percent share in 2 parcels of land registered in


the name of their son, Livingstone L. Ang (Livingstone), and in another lot
registered in the name of Livingstone and Alvin Limoco Ang.13

A certain Kenneth C. Locsin (Locsin) signed on behalf of Nancy and Theodore,


under a Special Power of Attorney which was not attached as part of the Settlement
Agreement or the Mortgage, nor included in the records of this case.

Thereafter, Juanito filed a "Stockholder Derivative Suit with prayer for an ex-parte
Writ of Attachment/Receivership" (Complaint) before the RTC Bacolod on 29
January 2009. He alleged that "the intentional and malicious refusal of defendant
Sps. Roberto and Rachel Ang to settle their 50% share x x x of the total obligation x
x x will definitely affect the financial viability of plaintiff SMBI." 14 Juanito also
claimed that he has been "illegally excluded from the management and participation
in the business of [SMBI through] force, violence and intimidation" and that Rachel
and Roberto have seized and carted away SMBIs records from its office.15

The Complaint sought the following reliefs:

a) Issuance of an ex-parte Writ of Attachment and/or Garnishment, with a


Break Open Order covering the assets of the spouses Roberto and Rachel Ang,
or any interest they may have against third parties;

b) Placement of SMBI under Receivership pending resolution of the case;

c) Enforcement of Juanitos right to actively participate in the management of


SMBI;
Page 284 of 675

d) Issuance of an Order compelling the Spouses Roberto and Rachel Ang to:

i. Render an accounting of the utilization of the loan amounting to


$2,585,577.37 or P120,229,347.26;

ii. Pay fifty percent of the aforementioned loan, amounting to


60,114,673.62;

iii. Explain why Nancy was removed as a stockholder as far as SMBIs


reportorial requirements with the SEC are concerned;

iv. Restore Juanitos right to actively manage the affairs of the


corporation; and

v. Pay attorneys fees amounting to P20,000.00.

On 29 January 2009, the RTC Bacolod issued an Order16 granting the application for
an ex-parte writ of attachment and break open order. Atty. Jerry Basiao, who filed
an application for appointment as Receiver of SMBI, was directed by the RTC
Bacolod to furnish the required Receivership Bond.17 On the same date, Roberto and
Rachel moved to quash the writ of attachment and set aside the break open order and
appointment of receiver.18 They claimed that these were issued in violation of their
right to due process:

Records of this case would show that the complaint was filed before the RTC
Bacolod at 2:50 p.m. of January 29, 2009. x x x Counsel for the defendant-spouses
went to the RTC Bacolod at around 3:00 p.m. on January 29, 2009 to inquire on the
status of the case and was informed that the last pleading on record is his entry of
appearance with the conformity of the defendant Rachel Ang. Counsel was however
informed by the clerk of court that the Honorable Judge has already issued an order
directing the issuance of the writ of preliminary attachment, receivership and break
open order but said order was not officially released yet x x x. Due to the undersigned
counsels insistence, however, said clerk of court of this Honorable Court furnished
him a copy of said order x x x. The clerk of court and the clerk in charge of civil
cases assured counsel that no writ of preliminary attachment was prepared or issued
x x x. Despite such assurance x x x [and counsels advice that they shall move to
quash the order the following morning], that afternoon, the clerk of court x x x
clandestinely, hurriedly and surreptitiously, for reasons known only to her, x x x
prepared the writ of attachment x x x.19
Page 285 of 675

In her Verified Answer Ad Cautelam which was filed on 10 February 2009, Rachel
prayed that the Complaint be dismissed as it was not a bona fide derivative suit as
defined under the Interim Rules of Procedure for Intra-Corporate
Controversies20 (Interim Rules). According to Rachel, the Complaint, although
labelled as a derivative suit, is actually a collection suit since the real party in interest
is not SMBI, but Nancy and Theodore:

The cause of action does not devolve on the corporation as the alleged harm or wrong
pertains to the right of the Sps. Theodore and Nancy Ang, as creditors, to collect the
amount allegedly owed to them. x x x

xxxx

That the instant suit is for the benefit of a non-stockholder and not the corporation is
obvious when the primary relief prayed for in the Complaint which is for the
defendants "to pay the amount of Php 60,114,673.62 plus interest which is 50% of
the loan obligations of plaintff [SMBI] to its creditor Sps. Theodore and Nancy
Ang." Otherwise stated, the instant suit is nothing but a complaint for sum of money
shamelessly masked as a derivative suit.21

Rachel also argued that the Complaint failed to allege that Juanito "exerted all
reasonable efforts to exhaust all intra-corporate remedies available under the articles
of incorporation, by-laws, laws or rules governing the corporation to obtain the relief
he desires," as required by the Interim Rules.

During cross-examination, Juanito admitted that there was no prior demand for
accounting or liquidation nor any written objection to SMBIs increase of capital
stock. He also conceded that the loan was extended by persons who are not
stockholders of SMBI. Thus, Rachel filed a Motion for Preliminary Hearing on
Affirmative Defenses on 27 November 2009, arguing that in view of Juanitos
admissions, the Complaint should be dismissed pursuant to Section 1 of the Interim
Rules. Juanito filed his Opposition thereto on 8 January 2010, 22 arguing that
applying this Courts ruling in Hi-Yield Realty, Inc. v. Court of Appeals,23 the
requirement for exhaustion of intra-corporate remedies is no longer needed when the
corporation itself is "under the complete control of the persons against whom the
suit is filed." Juanito also alleged that he and Anecita were deceived into signing
checks to pay off bogus loans purportedly extended by Rachels relatives in favor of
SMBI. Some of the checks were payable to cash, and were allegedly deposited in
Page 286 of 675

Rachels personal account.24 He also claimed that Rachels Motion is disallowed


under the Interim Rules.

On 9 February 2009, Juanito moved that Rachel and her daughter, Em Ang (Em), as
well as their counsel, Atty. Filomeno Tan, Jr. (Atty. Tan) be held in contempt.
Juanito claimed that on the date the writ of attachment and break open order were
issued, Atty. Tan, accompanied by Rachel and Em, "arrogantly demanded from the
Clerk in charge of Civil Cases that he be furnished a copy of the [said orders] x x x
otherwise he will tear the records of the subject commercial case." Juanito also
accused Atty. Tan of surreptitiously photocopying the said orders prior to service of
the summons, Complaint, Writ of Attachment and Attachment Bond. According to
Juanito, the purpose of obtaning a copy of the orders was to thwart its
implementation. Thus, when the authorities proceeded to the SMBI premises to
enforce the orders, they found that the place was padlocked, and that all corporate
documents and records were missing. On 14 December 2010, the Sheriff and other
RTC Bacolod employees then filed a Verified Complaint against Atty. Tan before
this Court, which also contained the foregoing allegations.25

Rachel then filed a Reply on 27 January 2010, claiming that Juanitos reliance on
the Hi-Yield case is misplaced:

The facts x x x of this case are strikingly different from that in Hi-Yield Realty. In
that case, the Supreme Court noted that the complaining stockholder was a minority
stockholder. However, in the case at bar, Juanito Ang is one of the biggest
stockholders of [SMBI]. x x x He is a member of [SMBIs] Board of Directors and
is even the vice-president thereof. Furthermore, in Hi-Yield Realty, the Supreme
Court noted that the complaining stockholder was excluded from the affairs of the
corporation. However, the evidence thus far presented, particularly Juanito Angs
admission, show that he and his wife, Anecita, participate in the disbursement of
[SMBIs] funds x x x.26

Juanito filed his Rejoinder on 2 March 2010.

The Ruling of the RTC Bacolod

On 27 September 2010, the RTC Bacolod issued an Order which stated that:
Page 287 of 675

WHEREFORE, premises considered, the court hereby rules that the present action
is a DERIVATIVE SUIT and the Motion to Dismiss based on Affirmative Defenses
raised by defendants is DENIED for lack of merit.27

The RTC Bacolod found that the issuance of the checks to settle the purported
obligations to Rachels relatives, as well as the removal of Nancy as a stockholder
in SMBIs records as filed with the SEC, shows that Rachel and Roberto committed
fraud. The Order likewise stated that the requirement of exhaustion of intra-
corporate remedies is no longer necessary since Rachel and Roberto exercised
complete control over SMBI.

Aggrieved, Rachel filed a Petition for Certiorari with the CA-Cebu.

The Ruling of the CA-Cebu

On 20 September 2011, the CA-Cebu promulgated its Decision which reversed and
set aside the Order of the RTC Bacolod dated 27 September 2010. According to the
CA-Cebu, the Complaint filed by Juanito should be dismissed because it is a
harassment suit, and not a valid derivative suit as defined under the Interim Rules.
The CA-Cebu also found that Juanito failed to exhaust intra-corporate remedies and
that the loan extended by Nancy and Theodore was not SMBIs corporate obligation.
There is nothing on record to show that non-payment of the loan will result in any
damage or prejudice to SMBI.

Juanito then filed a Motion for Reconsideration with Prayer for Voluntary Inhibition
on 28 October 2011. In his Motion, Juanito pointed out that Rachel filed her Petition
for Certiorari without previously filing a Motion for Reconsideration, warranting the
dismissal of the said Petition. The CA-Cebu denied the Motion.

Hence, this petition.

The Issues

The issues raised in the instant petition are:

<
p align="justify">I. Whether based on the allegations of the complaint, the
nature of the case is one of a derivative suit or not.
Page 288 of 675

Corollary to the above, whether the Honorable Court of Appeals erred x x x


in ordering the dismissal of the Complaint on the ground that the case is not a
derivative suit.

II. Whether the Honorable Court of Appeals x x x seriously erred in


considering evidence aliunde, that is, other than the four corners of the
complaint, in determining the nature of the complaint, in utter violation of the
doctrine that the jurisdiction is determined by law and allegations of the
complaint alone.

III. Granting arguendo, but without necessarily admitting that the complaint
is not one of a derivative suit, but only an ordinary civil action, whether the
Honorable Court of Appeals x x x gravely erred in dismissing the petition
entirely, when the Regional Trial Court a quo has jurisdiction also over the
case as an ordinary civil action, and can just proceed to hear the same as
such.28

The Ruling of this Court

The petition has no merit.

We uphold the CA-Cebus finding that the Complaint is not a derivative suit. A
derivative suit is an action brought by a stockholder on behalf of the corporation to
enforce corporate rights against the corporations directors, officers or other
insiders.29 Under Sections 2330 and 3631 of the Corporation Code, the directors or
officers, as provided under the by-laws,32 have the right to decide whether or not a
corporation should sue. Since these directors or officers will never be willing to sue
themselves, or impugn their wrongful or fraudulent decisions, stockholders are
permitted by law to bring an action in the name of the corporation to hold these
directors and officers accountable.33 In derivative suits, the real party ininterest is
the corporation, while the stockholder is a mere nominal party.

This Court, in Yu v. Yukayguan,34 explained:

The Court has recognized that a stockholders right to institute a derivative suit is
not based on any express provision of the Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized when the said laws make corporate
directors or officers liable for damages suffered by the corporation and its
stockholders for violation of their fiduciary duties. Hence, a stockholder may sue for
Page 289 of 675

mismanagement, waste or dissipation of corporate assets because of a special injury


to him for which he is otherwise without redress. In effect, the suit is an action for
specific performance of an obligation owed by the corporation to the stockholders
to assist its rights of action when the corporation has been put in default by the
wrongful refusal of the directors or management to make suitable measures for its
protection. The basis of a stockholders suit is always one in equity. However, it
cannot prosper without first complying with the legal requisites for its institution.
(Emphasis in the original)

Section 1, Rule 8 of the Interim Rules imposes the following requirements for
derivative suits:

(1) The person filing the suit must be a stockholder or member at the time the
acts or transactions subject of the action occurred and the time the action was
filed;

(2) He must have exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing the corporation or
partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

Applying the foregoing, we find that the Complaint is not a derivative suit. The
Complaint failed to show how the acts of Rachel and Roberto resulted in any
detriment to SMBI. The CA-Cebu correctly concluded that the loan was not a
corporate obligation, but a personal debt of the Ang brothers and their spouses. The
check was issued to "Juanito Ang and/or Anecita Ang and/or Roberto Ang and/or
Rachel Ang" and not SMBI. The proceeds of the loan were used for payment of the
obligations of the other corporations owned by the Angs as well as the purchase of
real properties for the Ang brothers. SMBI was never a party to the Settlement
Agreement or the Mortgage. It was never named as a co-debtor or guarantor of the
loan. Both instruments were executed by Juanito and Anecita in their personal
capacity, and not in their capacity as directors or officers of SMBI. Thus, SMBI is
under no legal obligation to satisfy the obligation.
Page 290 of 675

The fact that Juanito and Anecita attempted to constitute a mortgage over "their"
share in a corporate asset cannot affect SMBI. The Civil Code provides that in order
for a mortgage to be valid, the mortgagor must be the "absolute owner of the thing
x x x mortgaged."35 Corporate assets may be mortgaged by authorized directors or
officers on behalf of the corporation as owner, "as the transaction of the lawful
business of the corporation may reasonably and necessarily require."36 However, the
wording of the Mortgage reveals that it was signed by Juanito and Anecita in their
personal capacity as the "owners" of a pro-indiviso share in SMBIs land and not on
behalf of SMBI:

This Mortgage is made and executed by and between:

Spouses JUANITO and ANECITA ANG, of legal age, Filipino citizens, residents of
Sunrise Marketing Building at Hilado Street, Capitol Shopping Center, Bacolod
City, hereinafter referred to as the MORTGAGORS;

Spouses THEODORE and NANCY ANG, x x x hereinafter referred to as the


MORTGAGEES represented in this instance through their attorney-in-fact, Mr.
Kenneth Locsin;

xxxx

In order to ensure payment x x x the MORTGAGORS hereby CONVEY unto the


MORTGAGEES by way of EXTRA-JUDICIAL REAL ESTATE MORTGAGE
their 50% rights and interests over the following real properties to wit:

a. Those registered in the name of SUNRISE MARKETING (BACOLOD), INC. x


xx

x x x x37 (Emphasis supplied)

Juanito and Anecita, as stockholders of SMBI, are not co-owners of SMBI assets.
They do not own pro-indiviso shares, and therefore, cannot mortgage the same
except in their capacity as directors or officers of SMBI.

We also find that there is insufficient evidence to suggest that Roberto and Rachel
fraudulently and wrongfully removed Nancy as a stockholder in SMBIs reportorial
requirements. As early as 2005, when SMBI increased its capital stock, Juanito and
Anecita already knew that Nancy was not listed as a stockholder of SMBI. However,
they attempted to rectify the error only in 2009, when the Complaint was filed. That
Page 291 of 675

it took four years for them to make any attempt to question Nancys exclusion as
stockholder negates their allegation of fraud.

Since damage to the corporation was not sufficiently proven by Juanito, the
Complaint cannot be considered a bona fide derivative suit. A derivative suit is one
that seeks redress for injury to the corporation, and not the stockholder. No such
injury was proven in this case.

The Complaint also failed to allege that all available corporate remedies under the
articles of incorporation, by-laws, laws or rules governing the corporation were
exhausted, as required under the Interim Rules. The CA-Cebu, applying our ruling
in the Yu case, pointed out:

x x x No written demand was ever made for the board of directors to address private
respondent Juanito Angs concerns.1wphi1

The fact that [SMBI] is a family corporation does not exempt private respondent
Juanito Ang from complying with the Interim Rules. In the x x x Yu case, the
Supreme Court held that a family corporation is not exempt from complying with
the clear requirements and formalities of the rules for filing a derivative suit. There
is nothing in the pertinent laws or rules which state that there is a distinction between
x x x family corporations x x x and other types of corporations in the institution by
a stockholder of a derivative suit.38

Furthermore, there was no allegation that there was an attempt to remove Rachel or
Roberto as director or officer of SMBI, as permitted under the Corporation Code and
the by-laws of the corporation. Thus, the Complaint failed to satisfy the requirements
for a derivative suit under the

Interim Rules.

The CA-Cebu correctly ruled that the Complaint should be dismissed since it is a
nuisance or harassment suit under Section 1(b) of the Interim Rules. Section 1(b)
thereof provides:

b) Prohibition against nuisance and harassment suits. - Nuisance and harassment


suits are prohibited. In determining whether a suit is a nuisance or harassment suit,
the court shall consider, among others, the following:
Page 292 of 675

(1) The extent of the shareholding or interest of the initiating stockholder or


member;

(2) Subject matter of the suit;

(3) Legal and factual basis of the complaint;

(4) Availability of appraisal rights for the act or acts complained of; and

(5) Prejudice or damage to the corporation, partnership, or association in


relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu proprio or upon motion,
forthwith dismiss the case.

Records show that Juanito, apart from being Vice President, owns the highest
number of shares, equal to those owned by Roberto. Also, as explained earlier, there
appears to be no damage to SMBI if the loan extended by Nancy and Theodore
remains unpaid. The CA-Cebu correctly concluded that "a plain reading of the
allegations in the Complaint would readily show that the case x x x was mainly filed
to collect a debt allegedly extended by the spouses Theodore and Nancy Ang to
[SMBI]. Thus, the aggrieved party is not SMBI x x x but the spouses Theodore and
Nancy Ang, who are not even x x x stockholders."39

WHEREFORE, we DENY the petition. We AFFIRM the 20 September 2011


Decision of the Court of Appeals-Cebu in CA-G.R. SP No. 05546.

SO ORDERED.

VICTOR AFRICA, petitioner, vs. THE HONORABLE SANDIGANBAYAN


(Third Division); ROMAN MABANTA, JR.; and EDUARDO DE LOS
ANGELES, respondents.
Page 293 of 675

DECISION
DAVIDE, JR., J.:

This petition for certiorari under Rule 65 of the Rules of Court seeks to annul
the resolutions of the Sandiganbayan dated 30 January 1996 [1] and 29 March
1996[2] dismissing Civil Case No. 0146[3] and denying petitioners motion for
reconsideration, respectively.
A summary of the prior relevant events, as gathered from the voluminous records
elevated to this Court by the Sandiganbayan[4] and from G.R. No. 83831
entitled Africa v. PCGG,[5] is appropriate for a better understanding of the case.
Pursuant to its powers under Executive Order No.1[6] promulgated by then
President Corazon C. Aquino on 28 February 1986, the Presidential Commission on
Good Government (PCGG) sequestered on 14 March 1986 the Eastern
Telecommunications Philippines, Inc. (ETPI). Two months later, the sequestration
pertaining to 40% of the capital stock (Class B shares) owned by Cable and Wireless,
Ltd., a foreign corporation, was lifted. It, however, remained in force on the
remaining 60% of the capital stock (Class A shares) consisting of the shares of
Roberto S. Benedicto; Jose L. Africa; Polygon Investments & Managers, Inc.; and
Universal Molasses Corporation and all shares wherein the late President Ferdinand
E. Marcos was deemed the beneficial owner.[7]
On 22 July 1987, the PCGG filed with the Sandiganbayan Civil Case No. 0009
for the reconveyance, reversion, accounting, and restitution of the alleged ill-gotten
ETPI shares, and for damages.
Then followed various incidents, which this Court narrated in G.R. No. 83831;
thus:

Subsequently, during the annual stockholders meeting convened on January 29,


1988 pursuant to a PCGG Resolution dated January 28, 1988 which called for the
resumption of the stockholders meeting originally scheduled on January 4, 1988,
Eduardo M. Villanueva, as PCGG nominee, Roman Mabanta, Jr. and Eduardo de los
Angeles as nominees of the foreign investors, Cable Wireless Ltd., and Jose L.
Africa (who was absent) were elected as members of the board of directors.

An organizational meeting was later held where Eduardo Villanueva was elected as
president and general manager, while Ramon Desuasido, Almario Velasco and
Ranulfo Payos were elected as acting corporate secretary, acting treasurer, and
acting assistant corporate secretary, respectively.
Page 294 of 675

The nomination and election of PCGG nominees/designees to the ETPI Board of


Directors, as well as the election of its new officers, triggered a chain of contentious
proceedings before the Sandiganbayan and this Court between the members of the
ETPI Board and its stockholders, on the one hand, and the PCGGs
nominees/designees elected to the ETPI Board, on the other hand, in the cases
hereinunder discussed.

Victor Africa, who claims to be an employee of ETPI holding the positions of vice-
president, general counsel (on official leave without pay), corporate secretary and
special assistant to the chairman (and president), filed directly with this Court on
June 30, 1988 a petition for injunction docketed as G.R. No. 83831, seeking to enjoin
the PCGG and its nominees/designees to the board of directors and the newly-
installed officers of ETPI from implementing their alleged illegal, invalid and
immoral act of ousting him from his offices and positions at the ETPI pending the
determination of whether they have validly, legally and morally assumed their
supposed positions and offices as "directors" and/or "officers" of ETPI.

He contends that the reasons advanced by the PCGG-sponsored board of directors


for ousting him from his offices (redundancy, need to conserve company funds and
loss of confidence) are flimsy, whimsical and arbitrary, evidencing not only the
PCGG-sponsored boards discriminatory and oppressive attitude towards him but,
more importantly, its clear intent to harass him into refraining from questioning
before several tribunals all the invalid, illegal and immoral acts of said PCGG-
sponsored board which have caused and are still causing ETPI damages because they
constitute dissipation of assets.

Further claiming that the acts of respondents will work injustice, unfairness and
inequity to him as they will invalidly, illegally and immorally deprive him of his
principal means of livelihood to the detriment of his spouse and three children,
petitioner sought the issuance of a writ of preliminary injunction or a temporary
restraining order to enjoin the PCGG from ousting him from his positions and offices
effective June 30, 1988.

On July 8, 1988, petitioner informed the Court that while a verbal agreement to
maintain the status quo was reached between petitioners lawyers, Attys. Juan de
Ocampo and Antonio Africa, and Messrs. Orlando Romero and Serafin Rivera of
the PCGG, respondent Eduardo M. Villanueva circulated on July 5, 1988 an inter-
office memorandum easing out the legitimate members of the board from their
rooms in the executive offices for the benefit of the newly-installed members of the
Page 295 of 675

questioned PCGG board; and that Ildefonso Reynoso, vice-president for


administration, issued a memorandum to the Nival Security and Protective Agency
informing them that they were being relieved of their duty to provide security
services at the 7th Floor of Telecoms Plaza where the executive offices are located,
which services would then be handled by the FCA Security Agency.

On July 15, 1988, petitioner was allegedly forcibly taken out of his office on the
basis of a PCGG order which petitioner claimed was addressed not to then PCGG
Commissioner Laureta but to three other PCGG officials, namely, Esteban B.
Conejos, Jr., Serafin P. Rivera and Orlando Z. Romero. As a consequence, petitioner
Africa sought to have then Commissioner Laureta declared in contempt of court for
having committed improper conduct tending directly or indirectly, to impede,
obstruct or degrade the administration of justice. He likewise sought the issuance of
a writ of preliminary mandatory injunction ordering respondents to open his office
and allow him access to and use of the same.[8]

In the decision of 9 January 1992, we held that the issues raised in G.R. No.
83831, as well as in the motion for contempt filed by Eduardo Villanueva, were
factual in nature and could be best ventilated before the Sandiganbayan the proper
forum where both parties [could] substantiate their respective claims. We then
referred the said case to the Sandiganbayan for appropriate proceedings and ordered
its consolidation with Civil Case No. 0009. The said case was subsequently docketed
as Civil Case No. 0146. Thereafter, the petitioner filed a motion for summary
judgment, which the Sandiganbayan denied for lack of merit.
The private respondents then filed their answer with counterclaim in Civil Case
No. 0146. They reiterated that the petitioner was not a legitimate stockholder, but
merely a dummy for the late President Marcos; he was not, therefore, entitled to
examine the corporate records.
In the interim, the petitioner filed separate motions, among which was for the
production and inspection of documents.
In its resolution[9] of 10 January 1994, the Sandiganbayan granted petitioners
motion for the production and inspection of documents pertaining to the transfer of
ETPI shares to the private respondents, including the certificates of shares of stock
and the name, title, authority, and address of the person who entered the changes in
the stock and transfer book.
Private respondents De los Angeles and Mabanta thereafter filed an omnibus
motion for a reconsideration of the resolution and for the dismissal of Civil Case No.
Page 296 of 675

0146. They contended that in G.R. No. 83831 (now Civil Case No. 0146), this Court
did not grant petitioners prayer for a temporary restraining order to enjoin the PCGG
and the new board of directors and officers from ousting the petitioner from his
offices and positions at ETPI and even from his room during the pendency of the
petition. They concluded that in the absence of a restraining order, the petitioner was
validly stripped off of his positions, thereby rendering his petition moot and
academic. They also cited Africa v. PCGG[10] where this Court pronounced that they
were elected as nominees of the foreign investor Cable and Wireless, Ltd., owner of
the Class B shares, which were outside the scope of sequestration. They then argued
that in light of this Courts rulings in PCGG v. Pea[11] and San Miguel Corporation
v. Khan,[12] the Sandiganbayan did not have jurisdiction over them because the
shares pertaining to them were neither ill-gotten nor sequestered.
The petitioner opposed the omnibus motion because the validity of private
respondents election as members of the board remained the principal issue of his
petition and their eventual replacement in the board did not absolve them from any
responsibility for acts committed during their term.
In reply, the private respondents stressed that their vote as directors to oust the
petitioner from his positions and their right to sit as board members were issues
which were not in any way related to the sequestration or recovery of ill-gotten
wealth of which the Sandiganbayan exercises exclusive original jurisdiction.
In its Resolution of 30 January 1996,[13] the Sandiganbayan granted private
respondents motion and dismissed Civil Case No. 0416. It ruled that the petition for
injunction was moot and academic and could no longer prosper, since the act sought
to be enjoined had already been consummated. Besides, the Sandiganbayan had no
jurisdiction over respondents De los Angeles and Mabanta because their shares were
no longer covered by a writ of sequestration. Moreover, they were eventually
replaced by two British representatives.
His motion for a reconsideration of the resolution having been denied for lack of
merit in the resolution[14]of the Sandiganbayan of 29 March 1996, the petitioner filed
this special civil action for certiorari under Rule 65 of the Rules of Court contending
that

a. The Sandiganbayan acted in grave abuse of discretion when it dismissed the


case (ordered by this Honorable Court to be consolidated with SB Case No.
0009) in lieu of taking the appropriate proceedings as directed by this
Honorable Court.
Page 297 of 675

b. The Sandiganbayan acted in grave abuse of discretion when it dismissed the


case (even while it was already conducting hearings in the other cases on
the substantially identical reliefs) instead of including the case in the said
hearings.

c. The Sandiganbayan acted in grave abuse of discretion when it dismissed the


case (not only against the respondents Mabanta and De los Angeles who
were no longer ETPI directors, but also as against PCGG and the other non-
PCGG respondents) rather than just dropping the non-involved respondents
and continuing with the others.

d. The Sandiganbayan acted in grave abuse of discretion when it found the


shares involved (of Mabanta and De los Angeles) not to be sequestered
notwithstanding the absence of any document excluding them from the
sequestration previously imposed thereon by earlier documents.

On the other hand, the private respondents allege that the dismissal of Civil Case
No. 0416 was based on the evidence and law. The original petition was in the nature
of a preliminary prohibitory injunction, and not a preliminary mandatory injunction
as claimed by the petitioner. Since no injunction was granted by this Court,
petitioners ouster in 1988 became fait accompli.
To refute petitioners allegation that there was no evidence showing that their
shares were outside the scope of sequestration, the private respondents cite the
PCGG order of 14 May 1986, as well as the pronouncement of this Court in Africa
v. PCGG; thus:

The sequestration of Eastern Telecommunications Philippines, Inc. is lifted.


Henceforth, sequestration is limited to the shares of Roberto S. Benedicto, Jose L.
Africa, Polygon Investments, Universal Molasses and all shares wherein Ferdinand
E. Marcos is the beneficial owner.[15]

...

Shortly after the PCGG sequestered ETPI on March 14, 1986, the sequestration order
was partially lifted in May 1986 when 40% of the shares of stock (Class B) owned
by the Cable and Wireless, Ltd. were freed from the effects of sequestration.[16]

Finally, the private respondents cite anew the case of San Miguel Corporation v.
Khan,[17] where we held that the Sandiganbayan could not acquire jurisdiction over
Page 298 of 675

the suit involving the same respondent Eduardo de los Angeles because the San
Miguel shares of stock pertaining to him were not sequestered.
For its part, the PCGG maintains that the Sandiganbayan properly dismissed
Civil Case No. 0146 on the grounds that (1) the case had become moot and academic
and (2) the Sandiganbayan had no jurisdiction over the subject matter of the petition
insofar as private respondents Mabanta and De los Angeles were concerned.
As to the first, the PCGG points out that the petitioner had long been ousted from
his position in ETPI and there was, therefore, nothing more to enjoin. His subsequent
motion for preliminary mandatory injunction praying that his office be opened for
his access and use was rendered nugatory by his ouster.
As to the second ground, the PCGG argues that in two resolutions, [18] the
Sandiganbayan consistently ruled that the sequestration of ETPI was limited to Class
A shares, representing the 60% Filipino-owned capital stock. The PCGG likewise
confirms that in the controversial annual stockholders meeting on 29 January 1988
the PCGG did not make any nomination pertaining to Class B shares because it
recognized that said shares were not sequestered. Since then until the present, such
fact has remained.
We dismiss the petition.
First, the petitioner pursued the wrong remedy. Under Section 7 of P.D. No.
1606, as further amended by Section 3 of R.A. No. 7975,[19] petitioners remedy from
the order dismissing Civil Case No. 0146 was a petition for review under Rule 45 of
the Rules of Court. Said Section 7 pertinently provides as follows:

SEC. 7. Form, Finality and Enforcement of Decisions.

...

Decisions and final orders of the Sandiganbayan shall be appealable to the Supreme
Court by petition for review on certiorari raising pure questions of law in
accordance with Rule 45 of the Rules of Court.

The Sandiganbayans resolution of 30 January 1996 dismissing Civil Case No.


0146 was final in character in that it disposed of the action.[20] Accordingly, the
aggrieved party could appeal therefrom by way of a petition for review under Rule
45 of the Rules of Court pursuant to Sec. 7 of P.D. No. 1606 as further amended by
R.A. No. 7975.
Page 299 of 675

It is, of course, settled that the special civil action for certiorari may be resorted
to even if the remedy of appeal is available provided that it is shown that the appeal
is inadequate, slow, insufficient, and will not promptly relieve a party from the
injurious effects of the order complained of, or where the appeal is ineffective.[21] In
this case, the petitioner has not convinced us at all that the regular appeal under Rule
45 of the Rules of Court, as provided for in Section 7 of P.D. No. 1606 as further
amended by R.A. No. 7975, was inadequate, slow, insufficient, or ineffective. Other
than his bare, stereotyped allegation in the petition that he had no appeal, nor any
plain, speedy, and adequate remedy in the ordinary course of law, which is even
untrue since the remedy of appeal was in fact allowed, the petitioner has nothing to
offer to justify his resort to Rule 65 of the Rules of Court.
Even if it be conceded, arguendo, that the petitioner could properly avail of Rule
65, the instant petition would still fail. The assailed resolutions are not tainted with
grave abuse of discretion.
We agree with the Sandiganbayan that the petition for injunction had become
moot and academic. The remedy of injunction, specifically to prevent his ouster from
his positions, could no longer be entertained because the act sought to be prevented
had long been consummated.
Without doubt, the said petition was precipitated by the letter[22] dated 27 June
1988, which dismissed the petitioner from his positions effective 30 June 1988. The
petition in G.R. No. 83831, which was filed before this Court on 30 June 1988,
sought the issuance of a writ of preliminary injunction or temporary restraining order
to enjoin the PCGG and the newly elected ETPI board members and officers from
ousting the petitioner from his positions at ETPI. No temporary restraining order or
writ of preliminary injunction was issued by this Court. Hence, he was effectively
removed from his positions. Corollarily, his subsequent motion for a preliminary
mandatory injunction praying that the respondents be ordered to open his office and
allow him access to and use thereof had no leg to stand on.
Neither is there merit in petitioners argument that since this Court referred his
original petition (G.R. No. 83831) to the Sandiganbayan for appropriate proceedings
the Sandiganbayan should not have dismissed it. Such referral was made for the
Sandiganbayan to exercise its original jurisdiction and to determine the merits of the
issues raised by the parties, which were basically factual. Thus, the said tribunal
allowed the parties to argue their positions, as indicated in the voluminous pleadings
and motions filed by them. Hearings on certain motions, including those filed by the
petitioner, were conducted. It cannot, therefore, be denied that the Sandiganbayan
Page 300 of 675

gave due consideration to the petition and dismissed the same only after the parties
were given sufficient opportunity to ventilate their respective positions.
As to the issue of the propriety of impleading private respondents De los Angeles
and Mabanta, the ruling of the Sandiganbayan must be sustained. It must be
emphasized that the private respondents were elected to the board of directors upon
the nomination of the foreign investor Cable and Wireless, Ltd. At the time of the
election, the Class B shares, which were owned by the said foreign corporation, were
no longer under sequestration. This was confirmed by the PCGG itself in its
comment. Likewise, the Sandiganbayan itself ruled, in its Resolutions of 11 May
and 1 August 1995 in Civil Case No. 0009,[23] that said Class B shares were no longer
under sequestration. Conformably with our ruling in PCGG v. Pea[24] and San
Miguel Corporation v. Kahn,[25] the Sandiganbayan had no jurisdiction over the said
private respondents because the Class B shares pertaining to them were no longer
covered by the writ of sequestration.
Petitioners submission that, if at all, the dismissal should have been limited only
insofar as private respondents De los Angeles and Mabanta were concerned is not
persuasive. Again, the nature of the petition was limited to the prevention of his
ouster by the respondents as a collegial body. As earlier discussed, the petition itself
had become moot and academic, and its dismissal should benefit all the respondents.
WHEREFORE, premises considered, the petition is DISMISSED and the
Resolutions of 30 January and 29 March 1996 of the Sandiganbayan, Third Division,
are AFFIRMED in toto, with costs against the petitioner.
SO ORDERED.

G.R. No. 202079 June 10, 2013

FIL-ESTATE GOLF AND DEVELOPMENT, INC. and FILESTATE LAND,


INC., Petitioners,
vs.
VERTEX SALES AND TRADING, INC., Respondent.

DECISION
Page 301 of 675

BRION, J.:

Before the Court is the petition for review on certiorari1 under Rule 45 of the Rules
of Court, filed by petitioners Fil-Estate Golf and Development, Inc. (FEGDI) and
Fil-Estate Land, Inc. (FELl), assailing the decision2 dated February 22, 2012 and the
resolution3 dated May 31, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
89296. The assailed CA rulings reversed the decision dated March 1, 2007 of the
Regional Trial Court (RTC) of Pasig City, Branch 161, in Civil Case No. 68791.4

THE FACTS

FEGDI is a stock corporation whose primary business is the development of golf


courses. FELI is also a stock corporation, but is engaged in real estate development.
FEGDI was the developer of the Forest Hills Golf and Country Club (Forest Hills)
and, in consideration for its financing support and construction efforts, was issued
several shares of stock of Forest Hills.

Sometime in August 1997, FEGDI sold, on installment, to RS Asuncion


Construction Corporation (RSACC) one Class "C" Common Share of Forest Hills
for P1,100,000.00. Prior to the full payment of the purchase price, RSACC sold, on
February 11, 1999,5 the Class "C" Common Share to respondent Vertex Sales and
Trading, Inc. (Vertex). RSACC advised FEGDI of the sale to Vertex and FEGDI, in
turn, instructed Forest Hills to recognize Vertex as a shareholder. For this reason,
Vertex enjoyed membership privileges in Forest Hills.

Despite Vertexs full payment, the share remained in the name of FEGDI. Seventeen
(17) months after the sale (or on July 28, 2000), Vertex wrote FEDGI a letter
demanding the issuance of a stock certificate in its name. FELI replied, initially
requested Vertex to first pay the necessary fees for the transfer. Although Vertex
complied with the request, no certificate was issued. This prompted Vertex to make
a final demand on March 17, 2001. As the demand went unheeded, Vertex filed on
January 7, 2002 a Complaint for Rescission with Damages and Attachment against
FEGDI, FELI and Forest Hills. It averred that the petitioners defaulted in their
obligation as sellers when they failed and refused to issue the stock certificate
covering the subject share despite repeated demands. On the basis of its rights under
Article 1191 of the Civil Code, Vertex prayed for the rescission of the sale and
demanded the reimbursement of the amount it paid (or P1,100,000.00), plus interest.
During the pendency of the rescission action (or on January 23, 2002), a certificate
of stock was issued in Vertexs name, but Vertex refused to accept it.
Page 302 of 675

RULING OF THE RTC

The RTC dismissed the complaint for insufficiency of evidence. It ruled that delay
in the issuance of stock certificates does not warrant rescission of the contract as this
constituted a mere casual or slight breach. It also observed that notwithstanding the
delay in the issuance of the stock certificate, the sale had already been consummated;
the issuance of the stock certificate is just a collateral matter to the sale and the stock
certificate is not essential to "the creation of the relation of shareholder."6

RULING OF THE CA

Vertex appealed the dismissal of its complaint. In its decision, the CA reversed the
RTC and rescinded the sale of the share. Citing Section 63 of the Corporation Code,
the CA held that there can be no valid transfer of shares where there is no delivery
of the stock certificate. It considered the prolonged issuance of the stock certificate
a substantial breach that served as basis for Vertex to rescind the sale. 7 The CA
ordered the petitioners to return the amounts paid by Vertex by reason of the sale.

THE PARTIES ARGUMENTS

FEGDI and FELI filed the present petition for review on certiorari to assail the CA
rulings. They contend that the CA erred when it reversed the RTCs dismissal of
Vertexs complaint, declaring that the delay in the issuance of a stock certificate
constituted as substantial breach that warranted a rescission.

FEGDI argued that the delay cannot be considered a substantial breach because
Vertex was unequivocally recognized as a shareholder of Forest Hills. In fact,
Vertexs nominees became members of Forest Hills and fully enjoyed and utilized
all its facilities. It added that RSACC also used its shareholder rights and eventually
sold its share to Vertex despite the absence of a stock certificate. In light of these
circumstances, delay in the issuance of a stock certificate cannot be considered a
substantial breach.

For its part, FELI stated that it is not a party to the contract sought to be rescinded.
It argued that it was just recklessly dragged into the action due to a mistake
committed by FEGDIs staff on two instances. The first was when their counsel used
the letterhead of FELI instead of FEGDI in its reply-letter to Vertex; the second was
when they used the receipt of FELI for receipt of the documentary stamp tax paid by
Vertex.
Page 303 of 675

In its comment to the petition,8 Vertex alleged that the fulfillment of its obligation
to pay the purchase price called into action the petitioners reciprocal obligation to
deliver the stock certificate. Since there was delay in the issuance of a certificate for
more than three years, then it should be considered a substantial breach warranting
the rescission of the sale. Vertex further alleged that its use and enjoyment of Forest
Hills facilities cannot be considered delivery and transfer of ownership.

THE ISSUE

Given the parties arguments, the sole issue for the Court to resolve is whether the
delay in the issuance of a stock certificate can be considered a substantial breach as
to warrant rescission of the contract of sale.

THE COURTS RULING

The petition lacks merit.

Physical delivery is necessary to


transfer ownership of stocks

The factual backdrop of this case is similar to that of Raquel-Santos v. Court of


Appeals,9 where the Court held that in "a sale of shares of stock, physical delivery
of a stock certificate is one of the essential requisites for the transfer of ownership
of the stocks purchased."

In that case, Trans-Phil Marine Ent., Inc. (Trans-Phil) and Roland Garcia bought
Piltel shares from Finvest Securities Co., Inc. (Finvest Securities) in February 1997.
Since Finvest Securities failed to deliver the stock certificates, Trans-Phil and Garcia
filed an action first for specific performance, which was later on amended to an
action for rescission. The Court ruled that Finvest Securities failure to deliver the
shares of stock constituted substantial breach of their contract which gave rise to a
right on the part of Trans-Phil and Garcia to rescind the sale.

Section 63 of the Corporation Code provides:

SEC. 63. Certificate of stock and transfer of shares. The capital stock of stock
corporations shall be divided into shares for which certificates signed by the
president or vice-president, countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property and may be transferred by
Page 304 of 675

delivery of the certificate or certificates indorsed by the owner or his attorney-in-


fact or other person legally authorized to make the transfer.1wphi1 No transfer,
however, shall be valid, except as between the parties, until the transfer is recorded
in the books of the corporation showing the names of the parties to the transaction,
the date of the transfer, the number of the certificate or certificates and the number
of shares transferred.

No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.

In this case, Vertex fully paid the purchase price by February 11, 1999 but the stock
certificate was only delivered on January 23, 2002 after Vertex filed an action for
rescission against FEGDI.

Under these facts, considered in relation to the governing law, FEGDI clearly failed
to deliver the stock certificates, representing the shares of stock purchased by Vertex,
within a reasonable time from the point the shares should have been delivered. This
was a substantial breach of their contract that entitles Vertex the right to rescind the
sale under Article 1191 of the Civil Code. It is not entirely correct to say that a sale
had already been consummated as Vertex already enjoyed the rights a shareholder
can exercise. The enjoyment of these rights cannot suffice where the law, by its
express terms, requires a specific form to transfer ownership.

"Mutual restitution is required in cases involving rescission under Article 1191" of


the Civil Code; such restitution is necessary to bring back the parties to their original
situation prior to the inception of the contract.10 Accordingly, the amount paid to
FEGDI by reason of the sale should be returned to Vertex. On the amount of
damages, the CA is correct in not awarding damages since Vertex failed to prove by
sufficient evidence that it suffered actual damage due to the delay in the issuance of
the certificate of stock.

Regarding the involvement of FELI in this case, no privity of contract exists between
Vertex and FELI. "As a general rule, a contract is a meeting of minds between two
persons.1wphi1 The Civil Code upholds the spirit over the form; thus, it deems an
agreement to exist, provided the essential requisites are present. A contract is upheld
as long as there is proof of consent, subject matter and cause. Moreover, it is
generally obligatory in whatever form it may have been entered into. From the
moment there is a meeting of minds between the parties, [the contract] is
perfected."11
Page 305 of 675

In the sale of the Class "C" Common Share, the parties are only FEGDI, as seller,
and Vertex, as buyer. As can be seen from the records, FELl was only dragged into
the action when its staff used the wrong letterhead in replying to Vertex and issued
the wrong receipt for the payment of transfer taxes. Thus FELl should be absolved
from any liability.

WHEREFORE, we hereby DENY the petition. The decision dated February 22,
2012 and the resolution dated May 31, 2012 of the Court of Appeals in CA-G.R. CV
No. 89296 are AFFIRMED with the MODIFICATION that Fil-Estate Land, Inc. is
ABSOLVED from any liability.

SO ORDERED.

VITALIANO N. AGUIRRE II AND FIDEL N.


AGUIRRE, Petitioners, v. FQB+7, INC., NATHANIEL D. BOCOBO,
PRISCILA BOCOBO AND ANTONIO DE VILLA, Respondents.

DECISION

DEL CASTILLO, J.:

Pursuant to Section 145 of the Corporation Code, an existing intra-corporate dispute,


which does not constitute a continuation of corporate business, is not affected by the
subsequent dissolution of the corporation.cralawlibrary

Before the Court is a Petition for Review on Certiorari of the June 29, 2005
Decision1rl1 of the Court of Appeals (CA) in CA-G.R. SP No. 87293, which
nullified the trial court's writ of preliminary injunction and dismissed petitioner
Vitaliano N. Aguirre's (Vitaliano) Complaint before the Regional Trial Court (RTC)
for lack of jurisdiction. The dispositive portion of the assailed Decision
reads:chanroblesvirtualawlibrary
Page 306 of 675

WHEREFORE, the assailed October 15, 2004 Order, as well as the October 27,
2004 Writ of Preliminary Injunction, are SET ASIDE. With FQB+7, Inc.'s
dissolution on September 29, 2003 and Case No. 04111077's ceasing to become an
intra-corporate dispute, said case is hereby ordered DISMISSED for want of
jurisdiction.cralawlibrary

SO ORDERED.2rl1

Likewise assailed in this Petition is the appellate court's December 16, 2005
Resolution,3rl1 which denied a reconsideration of the assailed
Decision.cralawlibrary

Factual Antecedents

On October 5, 2004, Vitaliano filed, in his individual capacity and on behalf of


FQB+7, Inc. (FQB+7), a Complaint4rl1 for intra-corporate dispute, injunction,
inspection of corporate books and records, and damages, against respondents
Nathaniel D. Bocobo (Nathaniel), Priscila D. Bocobo (Priscila), and Antonio De
Villa (Antonio). The Complaint alleged that FQB+7 was established in 1985 with
the following directors and subscribers, as reflected in its Articles of
Incorporation:chanroblesvirtualawlibrary
Directors Subscribers
1. Francisco Q. Bocobo 1. Francisco Q. Bocobo
2. Fidel N. Aguirre 2. Fidel N. Aguirre
3. Alfredo Torres 3. Alfredo Torres
4. Victoriano Santos 4. Victoriano Santos
5. Victorino Santos5rl1 5. Victorino Santos
6. Vitaliano N. Aguirre II
7. Alberto Galang
8. Rolando B. Bechayda6rl1

To Vitaliano's knowledge, except for the death of Francisco Q. Bocobo and Alfredo
Torres, there has been no other change in the above listings.cralawlibrary

The Complaint further alleged that, sometime in April 2004, Vitaliano discovered a
General Information Sheet (GIS) of FQB+7, dated September 6, 2002, in the
Securities and Exchange Commission (SEC) records. This GIS was filed by
Francisco Q. Bocobo's heirs, Nathaniel and Priscila, as FQB+7's president and
Page 307 of 675

secretary/treasurer, respectively. It also stated FQB+7's directors and subscribers, as


follows:chanroblesvirtualawlibrary

Directors Subscribers
1. Nathaniel D. Bocobo 1. Nathaniel D. Bocobo
2. Priscila D. Bocobo 2. Priscila D. Bocobo
3. Fidel N. Aguirre 3. Fidel N. Aguirre
4. Victoriano Santos 4. Victorino7rl1 Santos
5. Victorino Santos 5. Victorino Santos
6. Consolacion Santos8rl1 6. Consolacion Santos9rl1

Further, the GIS reported that FQB+7's stockholders held their annual meeting on
September 3, 2002.10rl1

The substantive changes found in the GIS, respecting the composition of directors
and subscribers of FQB+7, prompted Vitaliano to write to the "real" Board of
Directors (the directors reflected in the Articles of Incorporation), represented by
Fidel N. Aguirre (Fidel). In this letter11rl1 dated April 29, 2004, Vitaliano
questioned the validity and truthfulness of the alleged stockholders meeting held on
September 3, 2002. He asked the "real" Board to rectify what he perceived as
erroneous entries in the GIS, and to allow him to inspect the corporate books and
records. The "real" Board allegedly ignored Vitaliano's request.cralawlibrary

On September 27, 2004, Nathaniel, in the exercise of his power as FQB+7's


president, appointed Antonio as the corporation's attorney-in-fact, with power of
administration over the corporation's farm in Quezon Province. 12rl1 Pursuant
thereto, Antonio attempted to take over the farm, but was allegedly prevented by
Fidel and his men.13rl1

Characterizing Nathaniel's, Priscila's, and Antonio's continuous representation of the


corporation as a usurpation of the management powers and prerogatives of the "real"
Board of Directors, the Complaint asked for an injunction against them and for the
nullification of all their previous actions as purported directors, including the GIS
they had filed with the SEC. The Complaint also sought damages for the plaintiffs
and a declaration of Vitaliano's right to inspect the corporate records.cralawlibrary

The case, docketed as SEC Case No. 04-111077, was assigned to Branch 24 of the
RTC of Manila (Manila RTC), which was a designated special commercial court,
pursuant to A.M. No. 03-03-03-SC.14rl1
Page 308 of 675

The respondents failed, despite notice, to attend the hearing on Vitaliano's


application for preliminary injunction.15rl1 Thus, in an Order16rl1 dated
October 15, 2004, the trial court granted the application based only on Vitaliano's
testimonial and documentary evidence, consisting of the corporation's articles of
incorporation, by-laws, the GIS, demand letter on the "real" Board of Directors, and
police blotter of the incident between Fidel's and Antonio's groups. On October 27,
2004, the trial court issued the writ of preliminary injunction 17rl1 after Vitaliano
filed an injunction bond.cralawlibrary

The respondents filed a motion for an extension of 10 days to file the "pleadings
warranted in response to the complaint," which they received on October 6,
2004.18rl1 The trial court denied this motion for being a prohibited pleading
under Section 8, Rule 1 of the Interim Rules of Procedure Governing Intra-corporate
Controversies under Republic Act (R.A.) No. 8799.19rl1

The respondents filed a Petition for Certiorari and Prohibition,20rl1 docketed as


CA-G.R. SP No. 87293, before the CA. They later amended their Petition by
impleading Fidel, who allegedly shares Vitaliano's interest in keeping them out of
the corporation, as a private respondent therein.21rl1

The respondents sought, in their certiorari petition, the annulment of all the
proceedings and issuances in SEC Case No. 04-11107722rl1 on the ground that
Branch 24 of the Manila RTC has no jurisdiction over the subject matter, which they
defined as being an agrarian dispute.23rl1 They theorized that Vitaliano's real
goal in filing the Complaint was to maintain custody of the corporate farm in Quezon
Province. Since this land is agricultural in nature, they claimed that jurisdiction
belongs to the Department of Agrarian Reform (DAR), not to the Manila
RTC.24rl1 They also raised the grounds of improper venue (alleging that the real
corporate address is different from that stated in the Articles of
Incorporation)25rl1 and forum-shopping26rl1 (there being a pending case
between the parties before the DAR regarding the inclusion of the corporate property
in the agrarian reform program).27rl1Respondents also raised their defenses to
Vitaliano's suit, particularly the alleged disloyalty and fraud committed by the "real"
Board of Directors,28rl1 and respondents' "preferential right to possess the
corporate property" as the heirs of the majority stockholder Francisco Q.
Bocobo.29rl1

The respondents further informed the CA that the SEC had already revoked FQB+7's
Page 309 of 675

Certificate of Registration on September 29, 2003 for its failure to comply with the
SEC reportorial requirements.30rl1The CA determined that the corporation's
dissolution was a conclusive fact after petitioners Vitaliano and Fidel failed to
dispute this factual assertion.31rl1

Ruling of the Court of Appeals

The CA determined that the issues of the case are the following: (1) whether the trial
court's issuance of the writ of preliminary injunction, in its October 15, 2004 Order,
was attended by grave abuse of discretion amounting to lack of jurisdiction; and (2)
whether the corporation's dissolution affected the trial court's jurisdiction to hear the
intracorporate dispute in SEC Case No. 04-111077.32rl1

On the first issue, the CA determined that the trial court committed a grave abuse of
discretion when it issued the writ of preliminary injunction to remove the
respondents from their positions in the Board of Directors based only on Vitaliano's
self-serving and empty assertions. Such assertions cannot outweigh the entries in the
GIS, which are documented facts on record, which state that respondents are
stockholders and were duly elected corporate directors and officers of FQB+7, Inc.
The CA held that Vitaliano only proved a future right in case he wins the suit. Since
an injunction is not a remedy to protect future, contingent or abstract rights, then
Vitaliano is not entitled to a writ.33rl1

Further, the CA disapproved the discrepancy between the trial court's October 15,
2004 Order, which granted the application for preliminary injunction, and its writ
dated October 27, 2004. The Order enjoined all the respondents "from entering,
occupying, or taking over possession of the farm owned by Atty. Vitaliano Aguirre
II," while the writ states that the subject farm is "owned by plaintiff corporation
located in Mulanay, Quezon Province." The CA held that this discrepancy imbued
the October 15, 2004 Order with jurisdictional infirmity.34rl1

On the second issue, the CA postulated that Section 122 of the Corporation Code
allows a dissolved corporation to continue as a body corporate for the limited
purpose of liquidating the corporate assets and distributing them to its creditors,
stockholders, and others in interest. It does not allow the dissolved corporation to
continue its business. That being the state of the law, the CA determined that
Vitaliano's Complaint, being geared towards the continuation of FQB+7, Inc.'s
business, should be dismissed because the corporation has lost its juridical
personality.35rl1 Moreover, the CA held that the trial court does not have
Page 310 of 675

jurisdiction to entertain an intra-corporate dispute when the corporation is already


dissolved.36rl1

After dismissing the Complaint, the CA reminded the parties that they should
proceed with the liquidation of the dissolved corporation based on the existing GIS,
thus:chanroblesvirtualawlibrary

With SEC's revocation of its certificate of registration on September 29, 2004 [sic],
FQB+7, Inc. will be obligated to wind up its affairs. The Corporation will have to be
liquidated within the 3-year period mandated by Sec. 122 of the Corporation
Code.cralawlibrary

Regardless of the method it will opt to liquidate itself, the Corporation will have to
reckon with the members of the board as duly listed in the General Information Sheet
last filed with SEC. Necessarily, and as admitted in the complaint below, the
following as listed in the Corporation's General Information Sheet dated September
6, 2002, will have to continue acting as Members of the Board of FQB+7, Inc. viz:

x x x x37rl1

Herein petitioners filed a Motion for Reconsideration.38rl1 They argued that the
CA erred in ruling that the October 15, 2004 Order was inconsistent with the writ.
They explained that pages 2 and 3 of the said Order were interchanged in the CA's
records, which then misled the CA to its erroneous conclusion. They also posited
that the original sentence in the correct Order reads: "All defendants are further
enjoined from entering, occupying or taking over possession of the farm owned by
plaintiff corporation located in Mulanay, Quezon." This sentence is in accord with
what is ordered in the writ, hence the CA erred in nullifying the Order.cralawlibrary

On the second issue, herein petitioners maintained that the CA erred in


characterizing the reliefs they sought as a continuance of the dissolved corporation's
business, which is prohibited under Section 122 of the Corporation Code. Instead,
they argued, the relief they seek is only to determine the real Board of Directors that
can represent the dissolved corporation.cralawlibrary

The CA denied the Motion for Reconsideration in its December 16, 2005
Resolution.39rl1 It determined that the crucial issue is the trial court's
jurisdiction over an intra-corporate dispute involving a dissolved
corporation.40rl1 Based on the prayers in the Complaint, petitioners seek a
Page 311 of 675

determination of the real Board that can take over the management of the
corporation's farm, not to sit as a liquidation Board. Thus, contrary to petitioners'
claims, their Complaint is not geared towards liquidation but a continuance of the
corporation's business.cralawlibrary

Issues

1. Whether the CA erred in annulling the October 15, 2004 Order based on
interchanged pages.cralawlibrary

2. Whether the Complaint seeks to continue the dissolved corporation's


business.cralawlibrary

3. Whether the RTC has jurisdiction over an intra-corporate dispute involving a


dissolved corporation.cralawlibrary

Our Ruling

The Petition is partly meritorious.cralawlibrary

On the nullification of the Order of


preliminary injunction.

Petitioners reiterate their argument that the CA was misled by the interchanged pages
in the October 15, 2004 Order. They posit that had the CA read the Order in its
correct sequence, it would not have nullified the Order on the ground that it was
issued with grave abuse of discretion amounting to lack of jurisdiction.41rl1

Petitioners' argument fails to impress. The CA did not nullify the October 15, 2004
Order merely because of the interchanged pages. Instead, the CA determined that
the applicant, Vitaliano, was not able to show that he had an actual and existing right
that had to be protected by a preliminary injunction. The most that Vitaliano was
able to prove was a future right based on his victory in the suit. Contrasting this
future right of Vitaliano with respondents' existing right under the GIS, the CA
determined that the trial court should not have disturbed the status quo. The CA's
discussion regarding the interchanged pages was made only in addition to its above
ratiocination. Thus, whether the pages were interchanged or not will not affect the
CA's main finding that the trial court issued the Order despite the absence of a clear
and existing right in favor of the applicant, which is tantamount to grave abuse of
Page 312 of 675

discretion. We cannot disturb the CA's finding on this score without any showing by
petitioners of strong basis to warrant the reversal.cralawlibrary

Is the Complaint a continuation of business?

Section 122 of the Corporation Code prohibits a dissolved corporation from


continuing its business, but allows it to continue with a limited personality in order
to settle and close its affairs, including its complete liquidation,
thus:chanroblesvirtualawlibrary

Sec. 122. Corporate liquidation. - Every corporation whose charter expires by its
own limitation or is annulled by forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three (3) years after the time when it would have
been so dissolved, for the purpose of prosecuting and defending suits by or against
it and enabling it to settle and close its affairs, to dispose of and convey its property
and to distribute its assets, but not for the purpose of continuing the business for
which it was established.

xxxx

Upon learning of the corporation's dissolution by revocation of its corporate


franchise, the CA held that the intra-corporate Complaint, which aims to continue
the corporation's business, must now be dismissed under Section 122.cralawlibrary

Petitioners concede that a dissolved corporation can no longer continue its business.
They argue, however, that Section 122 allows a dissolved corporation to wind up its
affairs within 3 years from its dissolution. Petitioners then maintain that the
Complaint, which seeks only a declaration that respondents are strangers to the
corporation and have no right to sit in the board or act as officers thereof, and a return
of Vitaliano's stockholdings, intends only to resolve remaining corporate issues. The
resolution of these issues is allegedly part of corporate winding up.cralawlibrary

Does the Complaint seek a continuation of business or is it a settlement of corporate


affairs? The answer lies in the prayers of the Complaint, which
state:chanroblesvirtualawlibrary
PRAYER
Page 313 of 675

WHEREFORE, it is most respectfully prayed of this Honorable Court that judgment


be rendered in favor of the plaintiffs and against the defendants, in the following
wise:

I. ON THE PRAYER OF TRO/STATUS QUO ORDER AND WRIT OF


PRELIMINARY INJUNCTION:

1. Forthwith and pending the resolution of plaintiffs' prayer for


issuance of writ of preliminary injunction, in order to maintain
the status quo, a status quo order or temporary restraining order
(TRO) be issued enjoining the defendants, their officers,
employees, and agents from exercising the powers and authority
as members of the Board of Directors of plaintiff FQB as well as
officers thereof and from misrepresenting and conducting
themselves as such, and enjoining defendant Antonio de Villa
from taking over the farm of the plaintiff FQB and from
exercising any power and authority by reason of his appointment
emanating from his co-defendant Bocobos.cralawlibrary

2. After due notice and hearing and during the pendency of this
action, to issue writ of preliminary injunction prohibiting the
defendants from committing the acts complained of herein, more
particularly those enumerated in the immediately pr[e]ceeding
paragraph, and making the injunction permanent after trial on the
merits.

II. ON THE MERITS

After trial, judgment be rendered in favor of the plaintiffs and against


the defendants, as follows:

1. Declaring defendant Bocobos as without any power and


authority to represent or conduct themselves as members of the
Board of Directors of plaintiff FQB, or as officers
thereof.cralawlibrary
Page 314 of 675

2. Declaring that Vitaliano N. Aguirre II is a stockholder of plaintiff


FQB owning fifty (50) shares of stock thereof.cralawlibrary

3. Allowing Vitaliano N. Aguirre II to inspect books and records of


the company.cralawlibrary

4. Annulling the GIS, Annex "C" of the Complaint as fraudulent


and illegally executed and filed.cralawlibrary

5. Ordering the defendants to pay jointly and solidarily the sum of


at least P200,000.00 as moral damages; at least P100,000.00 as
exemplary damages; and at least P100,000.00 as and for
attorney's fees and other litigation expenses.

Plaintiffs further pray for costs and such other relief just and equitable under the
premises.42rl1

The Court fails to find in the prayers above any intention to continue the corporate
business of FQB+7. The Complaint does not seek to enter into contracts, issue new
stocks, acquire properties, execute business transactions, etc. Its aim is not to
continue the corporate business, but to determine and vindicate an alleged
stockholder's right to the return of his stockholdings and to participate in the election
of directors, and a corporation's right to remove usurpers and strangers from its
affairs. The Court fails to see how the resolution of these issues can be said to
continue the business of FQB+7.cralawlibrary

Neither are these issues mooted by the dissolution of the corporation. A corporation's
board of directors is not rendered functus officio by its dissolution. Since Section
122 allows a corporation to continue its existence for a limited purpose, necessarily
there must be a board that will continue acting for and on behalf of the dissolved
corporation for that purpose. In fact, Section 122 authorizes the dissolved
corporation's board of directors to conduct its liquidation within three years from its
dissolution. Jurisprudence has even recognized the board's authority to act as trustee
for persons in interest beyond the said three-year period.43rl1 Thus, the
determination of which group is the bona fide or rightful board of the dissolved
corporation will still provide practical relief to the parties involved.cralawlibrary

The same is true with regard to Vitaliano's shareholdings in the dissolved


Page 315 of 675

corporation. A party's stockholdings in a corporation, whether existing or dissolved,


is a property right44rl1 which he may vindicate against another party who has
deprived him thereof. The corporation's dissolution does not extinguish such
property right. Section 145 of the Corporation Code ensures the protection of this
right, thus:chanroblesvirtualawlibrary
Sec. 145. Amendment or repeal. No right or remedy in favor of or against any
corporation, its stockholders, members, directors, trustees, or officers, nor any
liability incurred by any such corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the subsequent
dissolution of said corporation or by any subsequent amendment or repeal of this
Code or of any part thereof. (Emphases supplied.)

On the dismissal of the Complaint for


lack of jurisdiction.

The CA held that the trial court does not have jurisdiction over an intra-corporate
dispute involving a dissolved corporation. It further held that due to the corporation's
dissolution, the qualifications of the respondents can no longer be questioned and
that the dissolved corporation must now commence liquidation proceedings with the
respondents as its directors and officers.cralawlibrary

The CA's ruling is founded on the assumptions that intra-corporate controversies


continue only in existing corporations; that when the corporation is dissolved, these
controversies cease to be intra-corporate and need no longer be resolved; and that
the status quo in the corporation at the time of its dissolution must be maintained.
The Court finds no basis for the said assumptions.cralawlibrary

Intra-corporate disputes remain even


when the corporation is dissolved.

Jurisdiction over the subject matter is conferred by law. R.A.


No. 879945rl1 conferred jurisdiction over intra-corporate controversies on
courts of general jurisdiction or RTCs,46rl1 to be designated by the Supreme
Court. Thus, as long as the nature of the controversy is intra-corporate, the
designated RTCs have the authority to exercise jurisdiction over such
cases.cralawlibrary

So what are intra-corporate controversies? R.A. No. 8799 refers to Section 5 of


Page 316 of 675

Presidential Decree (P.D.) No. 902-A (or The SEC Reorganization Act) for a
description of such controversies:chanroblesvirtualawlibrary

a) Devices or schemes employed by or any acts, of the board of directors, business


associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholder, partners,
members of associations or organizations registered with the Commission;

b) Controversies arising out of intra-corporate or partnership relations, between and


among stockholders, members, or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively; and between such corporation, partnership or association
and the state insofar as it concerns their individual franchise or right to exist as such
entity;

c) Controversies in the election or appointments of directors, trustees, officers or


managers of such corporations, partnerships or associations.

The Court reproduced the above jurisdiction in Rule 1 of the Interim Rules of
Procedure Governing Intra-corporate Controversies under R.A. No.
8799:chanroblesvirtualawlibrary
SECTION 1. (a) Cases Covered These Rules shall govern the procedure to be
observed in civil cases involving the following:

(1) Devices or schemes employed by, or any act of, the board of directors, business
associates, officers or partners, amounting to fraud or misrepresentation which may
be detrimental to the interest of the public and/or of the stockholders, partners, or
members of any corporation, partnership, or association;

(2) Controversies arising out of intra-corporate, partnership, or association relations,


between and among stockholders, members, or associates; and between, any or all
of them and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively;

(3) Controversies in the election or appointment of directors, trustees, officers, or


managers of corporations, partnerships, or associations;

(4) Derivative suits; and


Page 317 of 675

(5) Inspection of corporate books.

Meanwhile, jurisprudence has elaborated on the above definitions by providing tests


in determining whether a controversy is intra-corporate. Reyes v. Regional Trial
Court of Makati, Br. 14247rl1 contains a comprehensive discussion of these two
tests, thus:chanroblesvirtualawlibrary
A review of relevant jurisprudence shows a development in the Court's approach in
classifying what constitutes an intra-corporate controversy. Initially, the main
consideration in determining whether a dispute constitutes an intra-corporate
controversy was limited to a consideration of the intra-corporate relationship
existing between or among the parties. The types of relationships embraced under
Section 5(b) x x x were as follows:

a) between the corporation, partnership, or association and the public;

b) between the corporation, partnership, or association and its stockholders, partners,


members, or officers;

c) between the corporation, partnership, or association and the State as far as its
franchise, permit or license to operate is concerned; and

d) among the stockholders, partners or associates themselves. xxx

The existence of any of the above intra-corporate relations was sufficient to confer
jurisdiction to the SEC [now the RTC], regardless of the subject matter of the
dispute. This came to be known as the relationship test.cralawlibrary

However, in the 1984 case of DMRC Enterprises v. Esta del Sol Mountain Reserve,
Inc., the Court introduced the nature of the controversy test. We declared in this
case that it is not the mere existence of an intra-corporate relationship that gives rise
to an intra-corporate controversy; to rely on the relationship test alone will divest the
regular courts of their jurisdiction for the sole reason that the dispute involves a
corporation, its directors, officers, or stockholders. We saw that there is no legal
sense in disregarding or minimizing the value of the nature of the transactions which
gives rise to the dispute.cralawlibrary

Under the nature of the controversy test, the incidents of that relationship must also
Page 318 of 675

be considered for the purpose of ascertaining whether the controversy itself is intra-
corporate. The controversy must not only be rooted in the existence of an intra-
corporate relationship, but must as well pertain to the enforcement of the
parties' correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation. If the
relationship and its incidents are merely incidental to the controversy or if there will
still be conflict even if the relationship does not exist, then no intra-corporate
controversy exists.cralawlibrary

The Court then combined the two tests and declared that jurisdiction should be
determined by considering not only the status or relationship of the parties, but
also the nature of the question under controversy. This two-tier test was adopted
in the recent case of Speed Distribution, Inc. v. Court of
Appeals:chanroblesvirtualawlibrary
'To determine whether a case involves an intra-corporate controversy, and is to be
heard and decided by the branches of the RTC specifically designated by the Court
to try and decide such cases, two elements must concur: (a) the status or
relationship of the parties, and [b] the nature of the question that is the subject
of their controversy.cralawlibrary

The first element requires that the controversy must arise out of intra-
corporate or partnership relations between any or all of the parties and the
corporation, partnership, or association of which they are stockholders, members or
associates, between any or all of them and the corporation, partnership or association
of which they are stockholders, members or associates, respectively; and between
such corporation, partnership, or association and the State insofar as it concerns the
individual franchises. The second element requires that the dispute among the
parties be intrinsically connected with the regulation of the corporation. If the
nature of the controversy involves matters that are purely civil in character,
necessarily, the case does not involve an intra-corporate controversy.' (Citations and
some emphases omitted; emphases supplied.)

Thus, to be considered as an intra-corporate dispute, the case: (a) must arise out of
intra-corporate or partnership relations, and (b) the nature of the question subject of
the controversy must be such that it is intrinsically connected with the regulation of
the corporation or the enforcement of the parties' rights and obligations under the
Corporation Code and the internal regulatory rules of the corporation. So long as
these two criteria are satisfied, the dispute is intra-corporate and the RTC, acting as
Page 319 of 675

a special commercial court, has jurisdiction over it.cralawlibrary

Examining the case before us in relation to these two criteria, the Court finds and so
holds that the case is essentially an intra-corporate dispute. It obviously arose from
the intra-corporate relations between the parties, and the questions involved pertain
to their rights and obligations under the Corporation Code and matters relating to the
regulation of the corporation. We further hold that the nature of the case as an intra-
corporate dispute was not affected by the subsequent dissolution of the
corporation.cralawlibrary

It bears reiterating that Section 145 of the Corporation Code protects, among others,
the rights and remedies of corporate actors against other corporate actors. The
statutory provision assures an aggrieved party that the corporation's dissolution will
not impair, much less remove, his/her rights or remedies against the corporation, its
stockholders, directors or officers. It also states that corporate dissolution will not
extinguish any liability already incurred by the corporation, its stockholders,
directors, or officers. In short, Section 145 preserves a corporate actor's cause of
action and remedy against another corporate actor. In so doing, Section 145 also
preserves the nature of the controversy between the parties as an intra-corporate
dispute.cralawlibrary

The dissolution of the corporation simply prohibits it from continuing its business.
However, despite such dissolution, the parties involved in the litigation are still
corporate actors. The dissolution does not automatically convert the parties into total
strangers or change their intra-corporate relationships. Neither does it change or
terminate existing causes of action, which arose because of the corporate ties
between the parties. Thus, a cause of action involving an intra-corporate controversy
remains and must be filed as an intra-corporate dispute despite the subsequent
dissolution of the corporation.cralawlibrary

WHEREFORE, premises considered, the Petition for Review


on Certiorari is PARTIALLY GRANTED. The assailed June 29, 2005 Decision
of the Court of Appeals in CA-G.R. SP No. 87293, as well as its December 16, 2005
Resolution, are ANNULLED with respect to their dismissal of SEC Case No. 04-
111077 on the ground of lack of jurisdiction. The said case is
ordered REINSTATED before Branch 24 of the Regional Trial Court of Manila.
The rest of the assailed issuances are AFFIRMED.

SO ORDERED.
Page 320 of 675

RENE KNECHT and KNECHT, INC., petitioners, vs. UNITED CIGARETTE


CORP., represented by ENCARNACION GONZALES WONG, and
EDUARDO BOLIMA, Sheriff, Regional Trial Court, Branch 151, Pasig
City, respondents.

DECISION
SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari[1] seeking to set aside the Decision
dated May 19, 1999 of the Court of Appeals in CA-G.R. SP No. 47978 upholding
the validity of the Orders dated June 27, 1997 and May 12, 1998 issued by the
Regional Trial Court, Branch 151, Pasig City in Civil Case No. 9165.
The facts are:
Rose Packing Company, Inc. (Rose Packing), a domestic corporation, owns
three (3) parcels of land with a total area of 31, 842 square meters situated in Sto.
Domingo, Cainta, Rizal.The largest among these parcels has an area of 31,447
square meters covered by Transfer Certificate of Title (TCT) No. 73620 of the
Registry of Deeds of Rizal. The other two remaining parcels are unregistered. The
area covered by TCT No. 73620 is mortgaged with the Philippine Commercial and
Industrial Bank (PCIB).
On October 26, 1965, Rose Packing, through its President Rene Knecht, sold to
the United Cigarette Corporation (UCC), a domestic corporation, the said parcels of
land, with all the buildings and improvements thereon, for P800,000.00.[2] Rose
Packing made a warranty that the lots are free from all liens and encumbrances,
except the real estate mortgage constituted over the area covered by TCT No.
73620. For its part, UCC promised to pay the purchase price under the following
terms and conditions: (a) a P250,000.00 down payment must be made upon signing
of the deed of sale with mortgage; (b) it will assume Rose Packings P250,000.00
Page 321 of 675

overdraft line obligation with the PCIB, subject to the latters approval; and (c) the
balance of P300,000.00 shall be paid in two annual installments at P150,000.00 each
(within 12 and 14 months) from the date of sale, with 10% annual interest. To secure
the deal, UCC initially paid Rose Packing P80,000.00 as earnest money.
Before the deed of sale could be executed, the parties found that Rose Packings
actual obligation with the PCIB far exceeded the P250,000.00 which UCC assumed
to pay under their agreement. So the PCIB demanded additional collateral from UCC
as a condition precedent for the approval of the sale of the mortgaged
property. However, UCC did not comply.
Meanwhile, Rose Packing again offered to sell the same lots to other prospective
buyers without the knowledge of UCC and without returning to the latter the earnest
money it earlier paid.[3]
Aggrieved, UCC, on March 2, 1966, filed with the then Court of First Instance
(CFI) of Rizal, Branch I, a complaint against Rose Packing and Rene Knecht for
specific performance and recovery of damages, docketed as Civil Case No. 9165.
On July 15, 1969, the CFI rendered a Decision holding that Rose Packing was
in bad faith when it did not inform UCC the amount of its actual obligation with the
PCIB. Considering that UCC agreed to assume the overdraft line obligation of Rose
Packing with the PCIB only to the extent of P250,000.00, it (UCC) cannot be
compelled to assume the excess obligation. The dispositive portion of the CFI
Decision reads:

PREMISES CONSIDERED, this Court orders defendants Rose Packing Companys,


Inc. and its President, Rene Knecht to convey and deliver to plaintiff, United
Cigarette Corporation, the three parcels of land object of the complaint, together
with all the buildings and improvements thereon, with the exception of machines for
canning factory, and to execute the corresponding deed of sale with mortgage
covering said properties for the purchase price of P800,000.00 under the following
terms and conditions: P250,000.00 as down payment upon the signing of the Deed
of Sale with Mortgage, less the P80,000.00 which plaintiff had paid to defendant
company as earnest money and less the amount in excess of the P250,000.00
overdraft line obligation of defendant corporation with Philippine Commercial and
Industrial Bank which the parties had agreed will be assumed by the plaintiff;
assumption by the plaintiff of the total of the overdraft line obligation of defendant
corporation to the Philippine Commercial and & Industrial Bank for which the
properties are answerable; and the balance of P300,000.00 to be paid in two equal
installments payable 12 months and 24 months from date of sale with 10% annual
Page 322 of 675

interest each installment to be covered by draft accepted by the Philippine Bank of


Commerce; provided, that, together with the P80,000.00 earnest money paid by
plaintiff to defendant, should the sum of defendant corporations overdraft line
obligation to the Philippine Commercial and Industrial Bank (which obligation will
be assumed by plaintiff) total more than P420,000.00, which is the total of
the P170,000.00 still due as down payment and the P250,000.00 agreed portion of
the obligation to the Philippine Commercial and Industrial Bank to be assumed by
plaintiff, the excess over said amount of P420,000.00, as well as the other amounts
which plaintiff may have to pay for existing attachments and other encumbrances
authorized by existing orders and the expenses in connection with the same, shall be
insufficient from the 2ndinstallment as well.

Should the total balance of P720,000.00 of the purchase price be insufficient to free
the properties from the obligation of defendant corporation for which they are or
have been made answerable, defendant corporation is hereby ordered to reimburse
plaintiff the amount of the excess and to execute the appropriate and effective deed
without mortgage transferring and conveying the subject properties to plaintiff.

Defendant Rose Packing Company, Inc., is also ordered to pay plaintiff the amount
of P10,000.00 in moral damages and to indemnify plaintiff United Cigarette
Corporation in the amount of P20,000.00 as litigation expenses which include the
costs of this suit and attorneys fees.

SO ORDERED.[4]

Rose Packing interposed an appeal to the Court of Appeals (CA), docketed as


CA-G.R. No. 45525-R. On March 30, 1973 and during the pendency of this appeal,
UCCs corporate life expired.[5] Alberto Wong, one of UCCs major stockholders, was
appointed trustee/liquidator of the dissolved corporation. He then represented UCC
in the proceedings in Civil Case 9165.[6]
On June 26, 1976, the CA affirmed the CFI Decision with modification in the
sense that the award of moral damages was deleted. This prompted Rose Packing
and Rene Knecht to file with this Court a petition for review on certiorari, docketed
as G.R. No. L-44977. In a Resolution dated January 5, 1977, this Court denied the
petition for lack of merit.[7] They filed a motion for reconsideration but was
denied. On March 23, 1977, this Courts Decision became final and executory.[8]
Unfortunately, several supervening incidents hampered the due execution of the
CFI Decision.
Page 323 of 675

The records show that on July 15, 1968, even before the trial court could render
its Decision in Civil Case No 9165, Rose Packing filed Civil Case No. 11015 with
Branch 2 of the same CFI, praying among others, to enjoin the PCIB from
proceeding with the foreclosure sale of the land covered by TCT No. 73620. The
CFI denied the application for injunction. Thus, the foreclosure sale proceeded and
title over the subject lot was consolidated in the name of the PCIB through the
issuance of TCT No. 286176 by the Registry of Deeds of Rizal.[9] On appeal by Rose
Packing, docketed as CA-G.R. No. 43198-R, the Court of Appeals upheld the
validity of the foreclosure sale but declared void ab initio the consolidation of
ownership in the name of PCIB over the subject property for being premature. The
appellate court granted Rose Packing a 60-day period within which to redeem the
foreclosed property. Unsatisfied, Rose Packing filed a petition for review on
certiorari with this Court, docketed as G.R. No. L.-33084.[10]
On November 14, 1988, this Court rendered a Decision in G.R. No. L.-
33084[11] declaring the foreclosure sale void and remanding Civil Case No. 11015 to
the lower court for further proceedings to determine the exact amount of Rose
Packings liability with the PCIB. In effect, ownership over the subject property
reverted to Rose Packing. At that time, however, Rose Packing (like UCC) had been
dissolved with the expiration of its corporate charter on June 10, 1986. Thereupon,
Knecht, Inc., a domestic corporation, undertook the liquidation of Rose Packings
assets as well as the winding-up of its pending affairs.
Subsequently, on July 19, 1990, UCC, through its liquidator Alberto Wong, filed
with the CFI, Branch 2 a motion for leave to intervene and to admit its complaint-
in-intervention in Civil Case No. 11015, which case was then absorbed by Branch
152 of the Regional Trial Court (RTC), Pasig City pursuant to the implementation
of Batas Pambansa Blg. 129 (the Judiciary Reorganization Act of 1981).[12] The
complaint-in-intervention sought to compel Rose Packing to comply with the
Decision in Civil Case No. 9165 and prayed that a writ of execution be issued to
enforce that decision. Rose Packing, through its liquidator/trustee, Knecht, Inc.,
opposed the motion claiming that the Decision in Civil Case No. 9165 which became
final on March 23, 1977 can no longer be enforced since more than ten (10) years
had elapsed from its finality.[13]
Despite the opposition, the RTC of Pasig (Branch 152), in an Order dated
December 10, 1990, granted UCCs motion for leave to intervene and admitted its
complaint-in-intervention.On October 10, 1991, the same court issued an Order
granting the writ of execution prayed for by UCC to enforce the Decision in Civil
Case No. 9165.
Page 324 of 675

Rose Packing, through Knecht, Inc. then questioned the validity of these twin
orders via a petition for certiorari with the CA, docketed as CA-G.R. SP No.
26545. The CA, in its Decision dated March 5, 1992,[14] nullified the CFI Orders
dated December 10, 1990 and October 10, 1991, holding that UCCs intervention in
Civil Case No. 11015 is not warranted since the only purpose is to execute the
judgment obtained by UCC against petitioner (Rose Packing) in Civil Case No.
9165. Thus, the RTC of Pasig City (Branch 152) has no jurisdiction to admit the
complaint-in-intervention and to issue the assailed writ of execution.
While it nullified the Orders dated December 10, 1990 and October 10, 1991,
the CA nonetheless stressed that UCCs right to execute the judgment in Civil
Case No. 9165 has not yet prescribed insofar as the parcel of land covered by
TCT No. 73620 is concerned because this land was involved in Civil Case No.
11015. Its execution can be availed of in Branch 151, not in Branch 152, of the RTC,
Pasig City. As regards the two other unregistered parcels of land, the
judgment has already prescribed because these properties were not involved in
Civil Case No. 11015, hence, UCC should have then sought the execution of the
judgment with respect to said properties.
Pursuant to the CA Decision in CA-G.R. SP No. 26545, the RTC of Pasig City
(Branch 151) issued an Order on June 17, 1992[15] granting UCCs motion for the
issuance of a writ of execution of the judgment in Civil Case No. 9165 with respect
to the land covered by TCT 73620 (then still in the name of PCIB under TCT No.
286176).
In seeking the annulment of this order, Rose Packing, through Knecht, Inc. and
Rene Knecht, filed with the CA CA-G.R. SP No. 28333 for certiorari. For the second
time, it assailed the validity of the judgment in Civil Case No. 9165 and reiterated
its position that UCCs right to enforce that judgment had already prescribed.
On March 18, 1993, the CA rendered a Decision[16] in CA-G.R. SP No. 28333
reiterating its ruling in CA-G.R. No. 26545 that UCCs right to file a motion for
execution of the Decision in Civil Case No. 9165 has not yet prescribed insofar as
the titled land is concerned, and that Rose Packing could no longer re-litigate Civil
Case No. 9165 which had long become final and executory.
Forthwith, Rose Packing filed a petition for review on certiorari with this Court,
docketed as G.R. No. 109385. On August 30, 1993, this Court denied the
petition[17] on the ground that no reversible error was committed by the CA in
rendering the questioned decision in CA-G.R. SP No. 28333. Rose Packing filed a
Page 325 of 675

motion for reconsideration but it was denied with finality by this Court in a
Resolution dated October 20, 1993.
On November 14, 1993, Knecht, Inc. and Rene Knecht, claiming that they had
just discovered UCCs dissolution on April 10, 1973 and that the three-year period to
liquidate its affairs had already expired, again questioned before the RTC of Pasig
City, Branch 151, the validity of the June 17, 1992 Order granting the writ of
execution in Civil Case No. 9165. They averred that upon its dissolution, UCC may
no longer move for execution.
On March 24, 1994, the trial court ordered the issuance of an alias writ of
execution in favor of UCC.[18] The alias writ was subsequently issued on April 19,
1994.
When the alias writ was about to be implemented, Rose Packing, through
Knecht, Inc. and Rene Knecht, instituted another petition with the CA, docketed as
CA-G.R. SP No. 33852.[19]They assailed the validity of the writ, reiterating that the
judgment in Civil Case No. 9165 which had become final and executory in 1977
cannot be enforced in favor of UCC due to the latters dissolution in 1973.
The CA, on October 25, 1994, dismissed the petition.[20] It ruled that the validity
and propriety of the enforcement of the Decision in Civil Case No. 9165 had been
resolved with finality in CA-G.R. SP No. 26545 and CA-G.R. SP No 28333, and
affirmed by this Court in G.R. No. 109385.
Aggrieved, Knecht, Inc. and Rene Knecht again filed a petition with this Court,
docketed as G.R. Nos. 118183-84, questioning the Decision of the Court of Appeals
in CA-G.R. SP No. 33852. In a Resolution dated January 30, 1995, this Court denied
the petition for being technically infirm. Their motion for reconsideration was
denied with finality on March 15, 1995.[21]
On July 15, 1995, UCC, thru Encarnacion Gonzales Wong, its new
trustee/liquidation, filed a motion for the issuance of a second alias writ of execution
to enforce the decision in Civil Case No. 9165 insofar as the land covered by TCT
No. 73620 is concerned. Surprisingly, for unknown reasons, title over the subject
realty (then already substituted by TCT No. 286176 in the name of PCIB) underwent
an anomalous transfer in the name of Knecht, Inc under TCT No. 613113.[22]
On November 8, 1995, upon UCCs motion, the trial court issued a Second Alias
Writ of Execution.[23]
To further derail the implementation of the second alias writ of execution over
the property covered by TCT No. 613113, Knecht, Inc. and Rene Knecht filed a
Page 326 of 675

petition with the CA, docketed as CA G.R. SP No. 39003. They contended anew that
Civil Case No. 9165 can no longer be enforced for having been rendered moot and
academic because of UCCs dissolution in 1973 and that of Rose Packing in
1986. Finding the contention devoid of merit, the CA in its Decision dated May 8,
1996,[24] dismissed the petition. It held that the three-year period allowed to a
dissolved corporation for liquidating its assets and winding up of its affairs can be
extended under certain circumstances where, as here, the suit filed by UCC during
its corporate existence necessarily prolonged that period. Moreover, mere
dissolution of a corporation cannot be invoked by Rose Packing to unjustly enrich
itself at the expense of the dissolved corporation.
Knecht, Inc. and Rene Knecht filed with this Court a petition for review,
docketed as G.R. No. 124983, questioning the CA Decision in CA-G.R. SP No.
39003. In a Resolution dated August 26, 1996, this Court dismissed the petition for
petitioners failure to pay the prescribed docketing and other fees within the
reglementary period. On November 11, 1996, their motion for reconsideration was
denied with finality.[25]
Thereafter, the trial court, upon motion[26] by UCC, issued an Order dated June
27, 1997[27] directing Sheriff Eduardo L. Bolima of Branch 151, RTC, Pasig City to
execute the corresponding deed of sale with mortgage in compliance with the
judgment in Civil Case No. 9165.
Rene Knecht filed a motion for reconsideration[28] insisting that the execution of
the judgment in Civil Case No. 9165 cannot be availed of anymore whether against
Rose Packing or in favor of UCC because both corporations had been dissolved. This
motion was denied by the trial court in an Order dated May 12, 1998.[29]
Undaunted, Rene Knecht and Knecht, Inc. filed a petition with the CA, docketed
as CA-G.R. SP No. 47978, assailing the trial courts jurisdiction to issue the June 27,
1997 and May 12, 1998 Orders. They impleaded as respondents Hon. Deogracias O.
Felizardo (Judge, RTC, Branch 151, Pasig City), Sheriff Eduardo L. Bolima and
UCC. Pending resolution of this petition, Sheriff Bolima executed a Sheriffs Deed
of Absolute Sale[30] dated June 16, 1998 transferring to UCC the parcel of land
covered by TCT No. 613113 for a consideration of P720,000.00 (which is the
difference between the agreed purchase price of P800,000.00 and the amount
of P80,000.00 paid by UCC as earnest money). UCC deposited the P720,000.00
with the Cashier of the Clerk of Court, RTC, Pasig City.
On May 10, 1999, the CA rendered the now questioned Decision,[31] upholding
the twin orders of the trial court dated June 27, 1997 and May 12, 1998. The CA
Page 327 of 675

emphasized that all the issues raised in the petition including the validity of the
enforcement of the decision and the corresponding writ of execution issued in Civil
Case No. 9165 in favor of UCC had already been finally decided and judicially laid
to rest in the several certiorari proceedings filed by Rene Knecht and Knecht, Inc.
with the Court of Appeals and this court. These issues cannot be reopened and re-
litigated without violating the rule on res judicata. Furthermore, the certiorari
proceedings directed against the enforcement of the same decision and writ of
execution constitute forum-shopping which, in essence, degrades the administration
of justice.
Upon denial by the CA of their motion for reconsideration, Rene Knecht and
Knecht, Inc. filed the present petition for review on certiorari assailing the Decision
in CA-G.R. SP No. 47978.
In the main, petitioners vehemently aver that the absence of a statutory authority
for the extension of the life of UCC for the purpose of pursuing Civil Case No. 9165
after its dissolution rendered void the July 15, 1969 Decision of the trial court in that
case. A void decision can be attacked any time either directly or collaterally without
violating the rules on res judicata and non-forum shopping. Necessarily, the writs
of execution and all other orders issued by the trial court to implement that void
decision are likewise void. In support of this contention, petitioners cite Sumera vs.
Valencia,[32] National Abaca and Other Fibers Corporation vs. Pore[33] and Board
of Liquidators vs. Kalaw.[34]
Furthermore, petitioners claim that the November 8, 1995 second alias writ of
execution cannot be implemented by the June 27, 1997 Order of the trial court
because: (1) the second alias writ varied the terms of the judgment in Civil Case No.
9165 resulting in the deprivation of petitioner Knecht, Inc. of its property without
due process; and (2) the said writ having expired, became functus officio.
The petition lacks merit.
Viewed from the facts stated above, it appears that petitioners have filed a total
of eight (8) appeals and/or petitions (including the present petition) with this Court
and the CA, all geared towards frustrating the execution of the judgment in Civil
Case No. 9165, to wit:
1. CA-G.R. SP No. 28333 Petition for certiorari filed with the CA to annul
the June 17, 1992 Order of the RTC, Branch 151, Pasig City allowing the
issuance of a writ of execution to enforce the decision in Civil Case No.
9165 (in accordance with the Decision of the CA in CA-G.R. SP No.
26545). Petitioners insisted that the judgment in Civil Case No. 9165
Page 328 of 675

cannot be enforced due to prescription. The CA dismissed the petition and


upheld the questioned order of the trial court;
2. G.R. No. 109385 Petition for review on certiorari filed with this Court
questioning the CA Decision in CA-G.R. SP No. 28333. This Court found
no reversible error on the part of the CA;
3. CA-G.R. SP No. 33852 Petition for certiorari filed with the CA seeking to
enjoin the enforcement of an alias writ of execution issued by the trial
court on April 19, 1994. Petitioners interposed the new argument that the
judgment in Civil Case No. 9165 cannot be enforced due to the dissolution
of UCC on March 30, 1973. The CA dismissed the petition;
4. G.R. Nos. 118183 and 118184 Petition for review on certiorari filed with
this Court questioning the CA Decision in CA-G.R. SP No. 33852. This
Court dismissed the petition in a Resolution dated January 30, 1995;
5. CA-G.R. SP No. 39003 Petition for certiorari and prohibition with prayer
for the issuance of temporary restraining order filed with the CA seeking,
among others, the annulment of the second alias writ of execution issued
by the trial court on November 8, 1995. Petitioners reiterated that the
judgment in Civil Case No. 9165 cannot anymore be enforced for having
been rendered moot and academic by the dissolution of UCC. The CA
denied this petition for lack of merit and upheld the validity of the second
alias writ of execution;
6. G.R. No. 124983 Petition for review on certiorari filed with this Court
questioning the CA Decision in CA-G.R. SP No. 39003. This Court
denied the petition in a Resolution dated August 26, 1996;
7. CA-G.R. SP No. 47978 Petition for certiorari filed with the CA seeking to
annul the June 27, 1997 Order of the trial court directing Sheriff Eduardo
L. Bolima of Branch 151, RTC, Pasig City to execute the corresponding
deed of sale with mortgage in compliance with the judgment and the
second alias writ of execution issued in Civil Case No. 9165. Petitioners
persistently claimed that the decision in Civil Case No. 9165 is voided by
the expiration of UCCs three-year period of liquidation from its
dissolution. Furthermore, they theorized that the second alias writ of
execution is improper because it varied the terms of the judgment and also
deprived Knecht, Inc. of its property without due process of law. The CA
denied this petition and cited petitioners guilty of forum shopping;
Page 329 of 675

8. G.R. No. 139370 The present petition for review filed with this Court
questioning the decision of the CA in CA-G.R. SP No. 47978.
Petitioners basis in filing these multiple petitions is the expiration of UCCs
corporate existence.
There is no doubt that the judgment in Civil Case No. 9165 became final and
executory on March 23, 1977. That this judgment is still enforceable was decided
with finality by this Court in G.R. No. 109385.
In Reburiano vs. Court of Appeals,[35] a case with similar facts, this Court held:

the trustee (of a dissolved corporation) may commence a suit which can proceed to
final judgment even beyond the three-year period (of liquidation) x x x, no
reason can be conceived why a suit already commenced by the corporation itself
during its existence, not by a mere trustee who, by fiction, merely continues the
legal personality of the dissolved corporation, should not be accorded similar
treatment to proceed to final judgment and execution thereof. (Emphasis ours)

Indeed, the rights of a corporation (dissolved pending litigation) are accorded


protection by law. This is clear from Section 145 of the Corporation Code, thus:

Section 145. Amendment or repeal. No right or remedy in favor of or against any


corporation, its stockholders, members, directors, trustees, or officers, nor any
liability incurred by any such corporation, stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the subsequent
dissolution of said corporation or by any subsequent amendment or repeal of this
Code or of any part thereof. (Emphasis ours)

The dissolution of UCC itself, or the expiration of its three-year liquidation


period, should not be a bar to the enforcement of its rights as a corporation. One of
these rights, to be sure, includes the UCCs right to seek from the court the execution
of a valid and final judgment in Civil Case No. 9165 through its trustee/liquidator
Encarnacion Gonzales Wong for the benefit of its stockholders, creditors and any
other person who may have legal claims against it. To hold otherwise would be to
allow petitioners to unjustly enrich themselves at the expense of UCC.This, in effect,
renders nugatory all the efforts and expenses of UCC in its quest to secure justice,
not to mention the undue delay in disposing of this case prejudicial to the
administration of justice.
Page 330 of 675

Next, petitioners aver that the November 8, 1995 second alias writ of execution,
implemented in the June 27, 1997 Order of the trial court, varied the judgment in
Civil Case No. 9165 resulting in the deprivation of their property without due
process.
Their argument is fallacious.
Suffice it to state that the final decision sought to be enforced in the alias writ
only pertains to the area covered by TCT No. 73620, not to the other two
unregistered lots. The said writ was intended only for the execution of the judgment
respecting one and the same parcel of land which, as elucidated earlier, underwent
series of transfer from Rose Packing (TCT No. 73620) to PCIB (TCT No. 286176)
and later to petitioner Knecht, Inc. (TCT No. 613113). As aptly found by the CA:

x x x what is being commanded to be conveyed in the judgment is Lot 2, Parcel 20,


Plan 11-8099, Amd-2, formerly covered by TCT No. 73620, Book No. T-645,
Page No. 20 of the Registry of Deeds of Rizal, presently covered by TCT No.
613113, due to what respondent UCC claims to be anomalous
transfers. Verily, not because the title to a parcel of land is cancelled and
replaced by a new one makes it a new or different lot.[36]

Lastly, petitioners submit that the November 8, 1995 second alias writ of
execution cannot be implemented by the June 27, 1997 Order of the trial court on
the ground that the said writ had already expired and, therefore, had become functus
officio pursuant to former Section 11, Rule 39 of the Rules of Civil Procedure. We
quote with approval the following disquisition of the CA in rejecting petitioners
argument:

Petitioners protestation that the second alias writ of execution dated November 8,
1995 could no longer be enforced after its life span of (sixty) 60 days is incorrect. At
the present times, the life span of a writ of execution is without limit for as long as
the judgment has not been satisfied, although it is returnable to the court issuing it
immediately after the judgment has been satisfied in part or in full. If the judgment
cannot be satisfied in full within thirty (30) days after receipt of the writ, the officers
duty is to report to the court and state the reason therefor (Section 14, Rule 39, 1997
Rules). There is, therefore, no more need to ask an alias writ of execution under the
new Rules.[37]

To be sure, the expiration of the second alias writ is attributable to petitioners


alone who deliberately caused the filing of numerous and unmeritorious petitions
Page 331 of 675

with the CA and this Court to thwart the long-delayed execution of the final and
executory Decision in Civil Case No. 9165.
It may now be trite, but apt, to stress that the Rules of Court shall be liberally
construed in order to promote their objective of securing a just, speedy and
inexpensive disposition of every action and proceeding.[38] They are mere tools
designed to facilitate the attainment of justice. Any rigid application of the rules
which would tend to frustrate, rather than promote, substantial justice is abhorred.[39]
Every litigation must come to an end. While a litigants right to initiate an action
in court is fully respected, however, once his case has been adjudicated by a
competent court in a valid final judgment, he should not be permitted to initiate
similar suits hoping to secure a favorable ruling, for this will result to endless
litigations detrimental to the administration of justice, as in this case.
WHEREFORE, the instant petition is DENIED and the assailed Decision of the
Court of Appeals in CA-G.R. SP No. 47978 is AFFIRMED. Treble costs against
petitioners.
SO ORDERED.

LUCIA BARRAMEDA VDA. DE G.R. No. 176260


BALLESTEROS,
Petitioner,
Present:

CARPIO, J., Chairperson,


NACHURA,
Page 332 of 675

- versus - PERALTA,
ABAD, and
MENDOZA, JJ.
RURAL BANK OF CANAMAN
INC., represented by its
Liquidator, THE PHILIPPINE
DEPOSIT INSURANCE
CORPORATION, Promulgated:
Respondent.

November 24, 2010

X -------------------------------------------------------------------------------------- X

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules
of Civil Procedure assailing the August 15, 2006 Decision[1] of the Court of
Appeals (CA) in CA-G.R. No. 82711, modifying the decision of the Regional Trial
Court of Iriga City, Branch 36 (RTC-Iriga), in Civil Case No. IR-3128, by ordering
the consolidation of the said civil case with Special Proceeding Case No. M-
5290 (liquidation case) before the Regional Trial Court of Makati City, Branch
59 (RTC-Makati).
Page 333 of 675

It appears from the records that on March 17, 2000, petitioner Lucia
Barrameda Vda. De Ballesteros (Lucia) filed a complaint for Annulment of Deed of
Extrajudicial Partition, Deed of Mortgage and Damages with prayer for
Preliminary Injunction against her children, Roy, Rito, Amy, Arabel, Rico, Abe,
Ponce Rex and Adden, all surnamed Ballesteros, and the Rural Bank of Canaman,
Inc., Baao Branch (RBCI) before the RTC-Iriga. The case was docketed as Civil
Case No. IR-3128.

In her complaint, Lucia alleged that her deceased husband, Eugenio, left two (2)
parcels of land located in San Nicolas, Baao, Camarines Sur, each with an area of
357 square meters; that on March 6, 1995, without her knowledge and consent, her
children executed a deed of extrajudicial partition and waiver of the estate of her
husband wherein all the heirs, including Lucia, agreed to allot the two parcels to
Rico Ballesteros (Rico); that, still, without her knowledge and consent, Rico
mortgaged Parcel B of the estate in favor of RBCI which mortgage was being
foreclosed for failure to settle the loan secured by the lot; and that Lucia was
occupying Parcel B and had no other place to live. She prayed that the deed of
extrajudicial partition and waiver, and the subsequent mortgage in favor of RBCI be
declared null and void having been executed without her knowledge and consent.She
also prayed for damages.

In its Answer, RBCI claimed that in 1979, Lucia sold one of the two parcels to Rico
which represented her share in the estate of her husband. The extrajudicial partition,
waiver and mortgage were all executed with the knowledge and consent of Lucia
although she was not able to sign the document. RBCI further claimed that Parcel B
had already been foreclosed way back in 1999 which fact was known to Lucia
through the auctioning notary public. Attorneys fees were pleaded as counterclaim.

The case was then set for pre-trial conference. During the pre-trial, RBCIs counsel
filed a motion to withdraw after being informed that Philippine Deposit Insurance
Page 334 of 675

Corporation (PDIC) would handle the case as RBCI had already been closed and
placed under the receivership of the PDIC. Consequently, on February 4, 2002, the
lawyers of PDIC took over the case of RBCI.

On May 9, 2003, RBCI, through PDIC, filed a motion to dismiss on the ground that
the RTC-Iriga has no jurisdiction over the subject matter of the action. RBCI stated
that pursuant to Section 30, Republic Act No. 7653 (RA No. 7653), otherwise known
as the New Central Bank Act, the RTC-Makati, already constituted itself, per its
Order dated August 10, 2001, as the liquidation court to assist PDIC in undertaking
the liquidation of RBCI. Thus, the subject matter of Civil Case No. IR-3128 fell
within the exclusive jurisdiction of such liquidation court. Lucia opposed the
motion.

On July 29, 2003, the RTC-Iriga issued an order[2] granting the Motion to
Dismiss, to wit:

This resolves the Motion to Dismiss filed by the defendant Rural


Bank of Canaman, Inc., premised on the ground that this court has no
jurisdiction over the subject matter of the action. This issue of
jurisdiction was raised in view of the pronouncement of the Supreme
Court in Ong v. C.A. 253 SCRA 105 and in the case of Hernandez v.
Rural Bank of Lucena, Inc., G.R. No. L-29791 dated January 10, 1978,
wherein it was held that the liquidation court shall have jurisdiction to
adjudicate all claims against the bank whether they be against assets of
the insolvent bank, for Specific Performance, Breach of Contract,
Damages or whatever.

It is in view of this jurisprudential pronouncement made by no


less than the Supreme Court, that this case is, as far as defendant Rural
Page 335 of 675

Bank of Canaman Inc., is concerned, hereby ordered DISMISSED


without prejudice on the part of the plaintiff to ventilate their claim
before the Liquidation Court now, RTC Branch 59, Makati City.

SO ORDERED.

Not in conformity, Lucia appealed the RTC ruling to the CA on the ground that the
RTC-Iriga erred in dismissing the case because it had jurisdiction over Civil Case
No. IR-3128 under the rule on adherence of jurisdiction.

On August 15, 2006, the CA rendered the questioned decision ordering the
consolidation of Civil Case No. IR-3128 and the liquidation case pending before
RTC-Makati. The appellate court ratiocinated thus:

The consolidation is desirable in order to prevent confusion, to avoid


multiplicity of suits and to save unnecessary cost and
expense. Needless to add, this procedure is well in accord with the
principle that the rules of procedure shall be liberally construed in order
to promote their object and to assist the parties in obtaining just, speedy
and inexpensive determination of every action and proceeding
(Vallacar Transit, Inc. v. Yap, 126 SCRA 500 [1983]; Suntay v.
Aguiluz, 209 SCRA 500 [1992] citing Ramos v. Ebarle, 182 SCRA 245
[1990]). It would be more in keeping with the demands of equity if the
cases are simply ordered consolidated. Pursuant to Section 2, Rule 1,
Revised Rules of Court, the rules on consolidation should be liberally
construed to achieve the object of the parties in obtaining just, speedy
and inexpensive determination of their cases (Allied Banking
Corporation v. Court of Appeals, 259 SCRA 371 [1996]).

The dispositive portion of the decision reads:


Page 336 of 675

IN VIEW OF ALL THE FOREGOING, the appealed decision is


hereby MODIFIED, in such a way that the dismissal of this case (Civil
Case No. IR-3128) is set aside and in lieu thereof another one is entered
ordering the consolidation of said case with the liquidation case
docketed as Special Proceeding No. M-5290 before Branch 59 of
the Regional Trial Court of Makati City, entitled In Re: Assistance in
the Judicial Liquidation of Rural Bank of Canaman, Camarines Sur,
Inc., Philippine Deposit Corporation, Petitioner. No pronouncement as
to cost.

SO ORDERED.[3]

Lucia filed a motion for reconsideration[4] but it was denied by the CA in its
Resolution dated December 14, 2006.[5]
Hence, the present petition for review on certiorari anchored on the following

GROUNDS

(I)

THE COURT OF APPEALS ERRED IN NOT FINDING THAT


THE REGIONAL TRIAL COURT OF IRIGA CITY, BRANCH
36 IS VESTED WITH JURISDICTION TO CONTINUE TRYING
AND ULTIMATELY DECIDE CIVIL CASE NO. IR-3128.

(II)
Page 337 of 675

THE COURT OF APPEALS ERRED AND GRAVELY ABUSED


ITS DISCRETION IN ORDERING THE CONSOLIDATION OF
CIVIL CASE NO. IR-3128 WITH THE LIQUIDATION CASE
DOCKETED AS SPECIAL PROCEEDINGS NO. M-5290
BEFORE BRANCH 59 OF
[6]
THE REGIONAL TRIAL COURT OF MAKATI CITY.

Given the foregoing arguments, the Court finds that the core issue to be resolved in
this petition involves a determination of whether a liquidation court can take
cognizance of a case wherein the main cause of action is not a simple money claim
against a bank ordered closed, placed under receivership of the PDIC, and
undergoing a liquidation proceeding.

Lucia contends that the RTC-Iriga is vested with jurisdiction over Civil Case
No. 3128, the constitution of the liquidation court notwithstanding. According to
her, the case was filed before the RTC-Iriga on March 17, 2000 at the time RBCI
was still doing business or before the defendant bank was placed under receivership
of PDIC in January 2001.

She further argues that the consolidation of the two cases is improper. Her
case, which is for annulment of deed of partition and waiver, deed of mortgage and
damages, cannot be legally brought before the RTC-Makati with the liquidation case
considering that her cause of action against RBCI is not a simple claim arising out
of a creditor-debtor relationship, but one which involves her rights and interest over
a certain property irregularly acquired by RBCI. Neither is she a creditor of the bank,
as only the creditors of the insolvent bank are allowed to file and ventilate claims
before the liquidator, pursuant to the August 10, 2001 Order of the RTC-Makati
which granted the petition for assistance in the liquidation of RBCI.
Page 338 of 675

In its Comment,[7] PDIC, as liquidator of RBCI, counters that the


consolidation of Civil Case No. 3128 with the liquidation proceeding is proper. It
posits that the liquidation court of RBCI, having been established, shall have
exclusive jurisdiction over all claims against the said bank.

After due consideration, the Court finds the petition devoid of merit.

Lucias argument, that the RTC-Iriga is vested with jurisdiction to continue


trying Civil Case No. IR-3128 until its final disposition, evidently falls out from a
strained interpretation of the law and jurisprudence. She contends that:

Since the RTC-Iriga has already obtained jurisdiction over the


case it should continue exercising such jurisdiction until the final
termination of the case. The jurisdiction of a court once attached cannot
be ousted by subsequent happenings or events, although of a character
which would have prevented jurisdiction from attaching in the first
instance, and the Court retains jurisdiction until it finally disposes of
the case (Aruego Jr. v. Court of Appeals, 254 SCRA 711).

When a court has already obtained and is exercising jurisdiction


over a controversy, its jurisdiction to proceed to final determination of
the case is not affected by a new legislation transferring jurisdiction
over such proceedings to another tribunal. (Alindao v. Joson, 264
SCRA 211). Once jurisdiction is vested, the same is retained up to the
end of the litigation (Bernate v. Court of Appeals, 263 SCRA 323).[8]

The afore-quoted cases, cited by Lucia to bolster the plea for the continuance
of her case, find no application in the case at bench.
Page 339 of 675

Indeed, the Court recognizes the doctrine on adherence of jurisdiction. Lucia,


however, must be reminded that such principle is not without exceptions. It is well
to quote the ruling of the CA on this matter, thus:
This Court is not unmindful nor unaware of the doctrine on the
adherence of jurisdiction. However, the rule on adherence of
jurisdiction is not absolute and has exceptions. One of the exceptions is
that when the change in jurisdiction is curative in character (Garcia v.
Martinez, 90 SCRA 331 [1979]; Calderon, Sr. v. Court of Appeals, 100
SCRA 459 [1980]; Atlas Fertilizer Corporation v. Navarro, 149 SCRA
432 [1987]; Abad v. RTC of Manila, Br. Lll, 154 SCRA 664 [1987]).

For sure, Section 30, R.A. 7653 is curative in character when it


declared that the liquidation court shall have jurisdiction in the same
proceedings to assist in the adjudication of the disputed claims against
the Bank. The interpretation of this Section (formerly Section 29, R.A.
265) becomes more obvious in the light of its intent. In Manalo v. Court
of Appeals (366 SCRA 752, [2001]), the Supreme Court says:

xxx The requirement that all claims against the bank


be pursued in the liquidation proceedings filed by the
Central Bank is intended to prevent multiplicity of actions
against the insolvent bank and designed to establish due
process and orderliness in the liquidation of the bank, to
obviate the proliferation of litigations and to avoid
injustice and arbitrariness (citing Ong v. CA, 253 SCRA
105 [1996]). The lawmaking body contemplated that for
convenience, only one court, if possible, should pass upon
the claims against the insolvent bank and that the
liquidation court should assist the Superintendents of
Banks and regulate his operations (citing Central Bank of
the Philippines, et al. v. CA, et al., 163 SCRA 482
[1988]).[9]
Page 340 of 675

As regards Lucias contention that jurisdiction already attached when Civil Case No.
IR-3128 was filed with, and jurisdiction obtained by, the RTC-Iriga prior to the filing
of the liquidation case before the RTC-Makati, her stance fails to persuade this
Court. In refuting this assertion, respondent PDIC cited the case of Lipana v.
Development Bank of Rizal[10] where it was held that the time of the filing of the
complaint is immaterial, viz:
It is the contention of petitioners, however, that the placing under
receivership of Respondent Bank long after the filing of the complaint
removed it from the doctrine in the said Morfe Case.

This contention is untenable. The time of the filing of the


complaint is immaterial. It is the execution that will obviously
prejudice the other depositors and creditors.Moreover, as stated in the
said Morfe case, the effect of the judgment is only to fix the amount of
the debt, and not to give priority over other depositors and creditors.

The cited Morfe case[11] held that after the Monetary Board has declared that
a bank is insolvent and has ordered it to cease operations, the Board becomes the
trustee of its assets for the equal benefit of all the creditors, including depositors. The
assets of the insolvent banking institution are held in trust for the equal benefit of all
creditors, and after its insolvency, one cannot obtain an advantage or a preference
over another by an attachment, execution or otherwise.

Thus, to allow Lucias case to proceed independently of the liquidation case, a


possibility of favorable judgment and execution thereof against the assets of RBCI
would not only prejudice the other creditors and depositors but would defeat the very
purpose for which a liquidation court was constituted as well.
Page 341 of 675

Anent the second issue, Lucia faults the CA in directing the consolidation of
Civil Case No. IR-3128 with Special Proceedings No. M-5290. The CA committed
no error. Lucias complaint involving annulment of deed of mortgage and damages
falls within the purview of a disputed claim in contemplation of Section 30 of R.A.
7653 (The New Central Bank Act). The jurisdiction should be lodged with the
liquidation court. Section 30 provides:
Sec. 30. Proceedings in Receivership and Liquidation. -
Whenever, upon report of the head of the supervising or examining
department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not include
inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
(b) has insufficient realizable assets, as determined by the
Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable
losses to its depositors or creditors; or
(d) has wilfully violated a cease and desist order under Section
37 that has become final, involving acts or transactions which amount
to fraud or a dissipation of the assets of the institution; in which cases,
the Monetary Board may summarily and without need for prior hearing
forbid the institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as receiver of
the banking institution.
For a quasi-bank, any person of recognized competence in
banking or finance may be designated as receiver.
The receiver shall immediately gather and take charge of all the
assets and liabilities of the institution, administer the same for the
benefit of its creditors, and exercise the general powers of a receiver
under the Revised Rules of Court but shall not, with the exception of
administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution: Provided, That the
receiver may deposit or place the funds of the institution in non-
speculative investments. The receiver shall determine as soon as
possible, but not later than ninety (90) days from take over, whether the
Page 342 of 675

institution may be rehabilitated or otherwise placed in such a condition


that it may be permitted to resume business with safety to its depositors
and creditors and the general public: Provided, That any determination
for the resumption of business of the institution shall be subject to prior
approval of the Monetary Board.
If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business in accordance with the
next preceding paragraph, the Monetary Board shall notify in writing
the board of directors of its findings and direct the receiver to proceed
with the liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without
requirement of prior notice or any other action, a petition for assistance
in the liquidation of the institution pursuant to a liquidation plan
adopted by the Philippine Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-banks, the liquidation
plan shall be adopted by the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the receiver after due
notice, adjudicate disputed claimsagainst the institution, assist the
enforcement of individual liabilities of the stockholders, directors and
officers, and decide on other issues as may be material to implement
the liquidation plan adopted. The receiver shall pay the cost of the
proceedings from the assets of the institution.
(2) convert the assets of the institution to money, dispose of the
same to creditors and other parties, for the purpose of paying the debts
of such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he may,
in the name of the institution, and with the assistance of counsel as he
may retain, institute such actions as may be necessary to collect and
recover accounts and assets of, or defend any action against, the
institution. The assets of an institution under receivership or liquidation
shall be deemed in custodia legis in the hands of the receiver and shall,
from the moment the institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy,
attachment, or execution. [Emphasis supplied]
xxx
Page 343 of 675

Disputed claims refers to all claims, whether they be against the assets of the
insolvent bank, for specific performance, breach of contract, damages, or
whatever.[12]Lucias action being a claim against RBCI can properly be consolidated
with the liquidation proceedings before the RTC-Makati. A liquidation proceeding
has been explained in the case of In Re: Petition For Assistance in the Liquidation
of the Rural Bank of BOKOD (Benguet), Inc. v. Bureau of Internal Revenue[13] as
follows:

A liquidation proceeding is a single proceeding which consists


of a number of cases properly classified as "claims." It is basically a
two-phased proceeding. The first phase is concerned with the approval
and disapproval of claims. Upon the approval of the petition seeking
the assistance of the proper court in the liquidation of a closed entity,
all money claims against the bank are required to be filed with the
liquidation court. This phase may end with the declaration by the
liquidation court that the claim is not proper or without basis. On the
other hand, it may also end with the liquidation court allowing the
claim. In the latter case, the claim shall be classified whether it is
ordinary or preferred, and thereafter included Liquidator. In either
case, the order allowing or disallowing a particular claim is final order,
and may be appealed by the party aggrieved thereby.

The second phase involves the approval by the Court of the


distribution plan prepared by the duly appointed liquidator. The
distribution plan specifies in detail the total amount available for
distribution to creditors whose claim were earlier allowed. The Order
finally disposes of the issue of how much property is available for
disposal. Moreover, it ushers in the final phase of the liquidation
proceeding - payment of all allowed claims in accordance with the
order of legal priority and the approved distribution plan.

xxx
Page 344 of 675

A liquidation proceeding is commenced by the filing of a single


petition by the Solicitor General with a court of competent jurisdiction
entitled, "Petition for Assistance in the Liquidation of e.g., Pacific
Banking Corporation. All claims against the insolvent are required to
be filed with the liquidation court. Although the claims are litigated in
the same proceeding, the treatment is individual. Each claim is heard
separately. And the Order issued relative to a particular claim applies
only to said claim, leaving the other claims unaffected, as each claim
is considered separate and distinct from the others. x x x [Emphasis
supplied.]

It is clear, therefore, that the liquidation court has jurisdiction over all claims,
including that of Lucia against the insolvent bank. As declared in Miranda v.
Philippine Deposit Insurance Corporation,[14] regular courts do not have jurisdiction
over actions filed by claimants against an insolvent bank, unless there is a clear
showing that the action taken by the BSP, through the Monetary Board, in the closure
of financial institutions was in excess of jurisdiction, or with grave abuse of
discretion. The same is not obtaining in this present case.

The power and authority of the Monetary Board to close banks and liquidate
them thereafter when public interest so requires is an exercise of the police power of
the State.Police power, however, is subject to judicial inquiry. It may not be
exercised arbitrarily or unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust, or is tantamount to a denial of due
process and equal protection clauses of the Constitution.[15]

In sum, this Court holds that the consolidation is proper considering that the
liquidation court has jurisdiction over Lucias action. It would be more in keeping
with law and equity if Lucias case is consolidated with the liquidation case in order
to expeditiously determine whether she is entitled to recover the property subject of
Page 345 of 675

mortgage from RBCI and, if so, how much she is entitled to receive from the
remaining assets of the bank.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 200094 June 10, 2013

BENIGNO M. VIGILLA, ALFONSO M. BONGOT, ROBERTO CALLESA,


LINDA C. CALLO, NILO B. CAMARA, ADELIA T. CAMARA, ADOLFO G.
PINON, JOHN A. FERNANDEZ, FEDERICO A. CALLO, MAXIMA P.
ARELLANO, JULITO B. COST ALES, SAMSON F. BACHAR, EDWIN P.
DAMO, RENA TO E. FERNANDEZ, GENARO F.CALLO, JIMMY C.
ALETA, and EUGENIO SALINAS, Petitioners,
vs.
PHILIPPINE COLLEGE OFCRIMINOLOGY INC. and/or GREGORY
ALAN F. BAUTISTA, Respondents.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the September 16, 2011 Decision1 of the Court of Appeals (CA), in CA-
G.R. SP No. 120225, which affirmed the February 11, 2011 Resolution2 and the
April 28, 20113 Resolution of the National Labor Relations Commission (NLRC).
The two NLRC resolutions affirmed with modifications the July 30, 2010
Page 346 of 675

Decision4 of the Labor Arbiter (LA) finding that (a) Metropolitan Building Services,
Inc. (MBMSI) was a labor-only contractor; (b) respondent Philippine College of
Criminology Inc. (PCCr) was the petitioners real principal employer; and (c) PCCr
acted in bad faith in dismissing the petitioners. The NLRC, however, declared that
the claims of the petitioners were settled amicably because of the releases, waivers
and quitclaims they had executed.

The Antecedents

PCCr is a non-stock educational institution, while the petitioners were janitors,


janitresses and supervisor in the Maintenance Department of PCCr under the
supervision and control of Atty. Florante A. Seril (Atty. Seril), PCCrs Senior Vice
President for Administration. The petitioners, however, were made to understand,
upon application with respondent school, that they were under MBMSI, a
corporation engaged in providing janitorial services to clients. Atty. Seril is also the
President and General Manager of MBMSI.

Sometime in 2008, PCCr discovered that the Certificate of Incorporation of MBMSI


had been revoked as of July 2, 2003. On March 16, 2009, PCCr, through its
President, respondent Gregory Alan F. Bautista (Bautista), citing the revocation,
terminated the schools relationship with MBMSI, resulting in the dismissal of the
employees or maintenance personnel under MBMSI, except Alfonso Bongot
(Bongot) who was retired.

In September, 2009, the dismissed employees, led by their supervisor, Benigno


Vigilla (Vigilla), filed their respective complaints for illegal dismissal,
reinstatement, back wages, separation pay (for Bongot), underpayment of salaries,
overtime pay, holiday pay, service incentive leave, and 13th month pay against
MBMSI, Atty. Seril, PCCr, and Bautista.

In their complaints, they alleged that it was the school, not MBMSI, which was their
real employer because (a) MBMSIs certification had been revoked; (b) PCCr had
direct control over MBMSIs operations; (c) there was no contract between MBMSI
and PCCr; and (d) the selection and hiring of employees were undertaken by PCCr.

On the other hand, PCCr and Bautista contended that (a) PCCr could not have
illegally dismissed the complainants because it was not their direct employer; (b)
MBMSI was the one who had complete and direct control over the complainants;
Page 347 of 675

and (c) PCCr had a contractual agreement with MBMSI, thus, making the latter their
direct employer.

On September 11, 2009, PCCr submitted several documents before LA Ronaldo


Hernandez, including releases, waivers and quitclaims in favor of MBMSI executed
by the complainants to prove that they were employees of MBMSI and not
PCCr.5 The said documents appeared to have been notarized by one Atty. Ramil
Gabao. A portion of the releases, waivers and quitclaims uniformly reads:

For and in consideration of the total amount of ______________, as and by way of


separation pay due to the closure of the Company brought about by serious financial
losses, receipt of the total amount is hereby acknowledged, I _______________, x x
x forever release and discharge x x x METROPOLITAN BUILDING
MAINTENANCE SERVICES, INC., of and from any and all claims, demands,
causes of actions, damages, costs, expenses, attorneys fees, and obligations of any
nature whatsoever, known or unknown, in law or in equity, which the undersigned
has, or may hereafter have against the METROPOLITAN BUILDING
MAINTENANCE SERVICES, INC., whether administrative, civil or criminal, and
whether or not arising out of or in relation to my employment with the above
company or third persons.6

Ruling of the Labor Arbiter

After due proceedings, the LA handed down his decision, finding that (a) PCCr was
the real principal employer of the complainants ; (b) MBMSI was a mere adjunct or
alter ego/labor-only contractor; (c) the complainants were regular employees of
PCCr; and (d) PCCr/Bautista were in bad faith in dismissing the complainants.

The LA ordered the respondents (a) to reinstate petitioners except Bongot who was
deemed separated/retired; (b) to pay their full back wages from the date of their
illegal dismissal until actual reinstatement (totaling P2,963,584.25); (c) to pay
Bongots separation or retirement pay benefit under the Labor Code (amounting
to P254,010.00); (d) to pay their 3-year Service Incentive Leave Pay (P4,245.60
each) except Vigilla (P5,141.40); (e) to pay all the petitioners moral and exemplary
damages in the combined amount of P150,000.00; and finally (f) to pay 10% of the
total computable award as Attorneys Fees.

The LA explained that PCCr was actually the one which exercised control over the
means and methods of the work of the petitioners, thru Atty. Seril, who was acting,
Page 348 of 675

throughout the time in his capacity as Senior Vice President for Administration of
PCCr, not in any way or time as the supposed employer/general manager or president
of MBMSI.

Despite the presentation by the respondents of the releases, waivers and quitclaims
executed by petitioners in favor of MBMSI, the LA did not touch on the validity and
authenticity of the same. Neither did he discuss the effects of such releases, waivers
and quitclaims on petitioners claims.

Ruling of the NLRC

Not satisfied, the respondents filed an appeal before the NLRC. In its Resolution,
dated February 11, 2011, the NLRC affirmed the LAs findings. Nevertheless, the
respondents were excused from their liability by virtue of the releases, waivers and
quitclaims executed by the petitioners. Specifically, the NLRC pointed out:

As Respondent MBMSI and Atty. Seril, together are found to be labor only
contractor, they are solidarily liable with Respondent PCCr and Gregory Alan F.
Bautista for the valid claims of Complainants pursuant to Article 109 of the Labor
Code on the solidary liability of the employer and indirect employer. This liability,
however, is effectively expunged by the acts of the 17 Complainants of executing
Release, Waiver, and Quitclaims (pp. 170-184, Records) in favor of Respondent
MBMSI. The liability being joined, the release of one redounds to the benefit of the
others, pursuant to Art. 1217 of the Civil Code, which provides that "Payment made
by one of the solidary debtors extinguishes the obligation. x x x."7

In their motion for reconsideration, petitioners attached as annexes their affidavits


denying that they had signed the releases, waivers, and quitclaims. They prayed for
the reinstatement in toto of the July 30, 2010 Decision of the LA. 8 MBMSI/Atty.
Seril also filed a motion for reconsideration9 questioning the declaration of the
NLRC that he was solidarily liable with PCCr.

On April 28, 2011, NLRC modified its February 11, 2011 Resolution by affirming
the July 30, 2010 Decision10 of the LA only in so far as complainants Ernesto B.
Ayento and Eduardo B. Salonga were concerned. As for the other 17 complainants,
the NLRC ruled that their awards had been superseded by their respective releases,
waivers and quitclaims.
Page 349 of 675

The seventeen (17) complainants filed with the CA a petition for certiorari under
Rule 65 faulting the NLRC with grave abuse of discretion for absolving the
respondents from their liability by virtue of their respective releases, waivers and
quitclaims.

Ruling of the Court of Appeals

On September 16, 2011, the CA denied the petition and affirmed the two Resolutions
of the NLRC, dated February 11, 2011 and April 28, 2011. The CA pointed out that
based on the principle of solidary liability and Article 121711 of the New Civil Code,
petitioners respective releases, waivers and quitclaims in favor of MBMSI and Atty.
Seril redounded to the benefit of the respondents. The CA also upheld the factual
findings of the NLRC as to the authenticity and due execution of the individual
releases, waivers and quitclaims because of the failure of petitioners to substantiate
their claim of forgery and to overcome the presumption of regularity of a notarized
document. Petitioners motion for reconsideration was likewise denied by the CA in
its January 4, 2012 Resolution.

Hence, this petition under Rule 45 challenging the CA Decision anchored on the
following

GROUNDS

The Hon. Court of Appeals COMMITTED REVERSIBLE ERRORS when:

A. IT CONSIDERED RESPONDENT METROPOLITAN BUILDING


MAINTENANCE SERVICES, INC.S LIABILITY AS SOLIDARY TO
RESPONDENT PHILIPPINE COLLEGE OF CRIMINOLOGY, INC.,
WHEN IN FACT THERE IS NO LEGAL BASIS TO THAT EFFECT.

B. IT DID NOT AFFIRM THE DECISION OF THE HON. LABOR


ARBITER, DATED JULY 30, 2010, AS TO 17 PETITIONERS IN THIS
CASE, DISREGARDING THE CORPORATION LAW AND
JURISPRUDENCE OF THE HON. SUPREME COURT IN SO FAR AS
QUITLCLAIMS, RELEASE AND WAIVERS ARE CONCERNED IN
LABOR CASES.

C. IT AFFIRMED THE DECISION OF THE HON. NATIONAL LABOR


RELATIONS COMMISSION, THAT THE 17 COMPLAINANTS HAVE
SETTLED THEIR CLAIMS BY VIRTUE OF ALLEGED RELEASES,
Page 350 of 675

WAIVERS AND QUITCLAIMS SIGNED BY THE COMPLAINANTS IN


FAVOR OF METROPOLITAN BUILDING MAINTENANCE, INC.

D. IT DID NOT TAKE INTO CONSIDERATION SUBSTANTIAL


EVIDENCE OF PETITIONERS/COMPLAINANTS DISPUTING THE
ALLEGED WAIVERS, RELEASES AND QUITCLAIMS, INCLUDING
THE ALLEGED NOTARIZATION THEREOF.12

The petition fails.

The grounds cited by the petitioners boil down to this basic issue: whether or not
their claims against the respondents were amicably settled by virtue of the releases,
waivers and quitclaims which they had executed in favor of MBMSI.

In resolving this case, the Court must consider three (3) important sub-issues, to wit:

(a) whether or not petitioners executed the said releases, waivers and
quitclaims;

(b) whether or not a dissolved corporation can enter into an agreement such
as releases, waivers and quitclaims beyond the 3-year winding up period
under Section 122 of the Corporation Code; and

(c) whether or not a labor-only contractor is solidarily liable with the


employer.

The Releases, Waivers and


Quitclaims are Valid

Petitioners vehemently deny having executed any release, waiver or quitclaim in


favor of MBMSI. They insist that PCCr forged the documents just to evade their
legal obligations to them, alleging that the contents of the documents were written
by one person, whom they identified as Reynaldo Chavez, an employee of PCCr,
whose handwriting they were familiar with.13

To begin with, their posture was just an afterthought. Petitioners had several
opportunities to question the authenticity of the said documents but did not do so.
The records disclose that during the proceedings before the LA, PCCr submitted
several documents, including the subject releases, waivers and quitclaims executed
on September 11, 2009 in favor of MBMSI,14 but petitioners never put their
Page 351 of 675

genuineness and due execution at issue. These were brought up again by the
respondents in their Memorandum of Appeal,15 but again petitioners did not bother
to dispute them.

It was only after the NLRCs declaration in its February 11, 2011 Resolution that
the claims of petitioners had been settled amicably by virtue of the releases, waivers
and quitclaims, that petitioners, in their motion for reconsideration,16 denied having
executed any of these instruments. This passiveness and inconsistency of petitioners
will not pass the scrutiny of this Court.

At any rate, it is quite apparent that this petition raises questions of fact inasmuch as
this Court is being asked to revisit and assess anew the factual findings of the CA
and the NLRC regarding the validity, authenticity and due execution of the subject
releases, waivers and quitclaims.

Well-settled is the rule that this Court is not a trier of facts and this doctrine applies
with greater force in labor cases. Questions of fact are for the labor tribunals to
resolve.17 Only errors of law are generally reviewed in petitions for review on
certiorari criticizing decisions of the CA. Moreover, findings of fact of quasi-judicial
bodies like the NLRC, as affirmed by the CA, are generally conclusive on this
Court.18 Hence, as correctly declared by the CA, the following NLRC factual
findings are binding and conclusive on this Court:

We noted that the individual quitclaims, waivers and releases executed by the
complainants showing that they received their separation pay from MBMSI were
duly notarized by a Notary Public. Such notarization gives prima facie evidence of
their due execution. Further, said releases, waivers, and quitclaims were not refuted
nor disputed by complainants herein, thus, we have no recourse but to uphold their
due execution.19

Even if the Court relaxes the foregoing rule, there is still no reason to reverse the
factual findings of the NLRC and the CA. What is on record is only the self-serving
allegation of petitioners that the releases, waivers and quitclaims were mere
forgeries. Petitioners failed to substantiate this allegation. As correctly found by the
CA: "petitioners have not offered concrete proof to substantiate their claim of
forgery. Allegations are not evidence."20

On the contrary, the records confirm that petitioners were really paid their separation
pay and had executed releases, waivers and quitclaims in return. In his motion for
Page 352 of 675

reconsideration of the February 11, 2011 Resolution of the NLRC, Atty. Seril,
President and General Manager of MBMSI, stated that the amount of 2,000,000.00
"was coursed by PCCr to me, to be handed to the complainants, through its
employee, Rey Chavez."21

Petitioners requested the Court to take a look at such releases, waivers and
quitclaims, particularly their contents and the handwriting, but they failed to attach
to the records copies of the said documents which they claimed to have been forged.
The petition is dismissible on this ground alone. The Rules of Court require the
petition to be accompanied by such material portions of the record as would support
the petition.22 Failure to comply with the requirements regarding "the contents of
and the documents which should accompany the petition" is a ground for the
dismissal of the appeal.23

Moreover, mere unsubstantiated allegations of lack of voluntariness in executing the


documents will not suffice to overcome the presumption of authenticity and due
execution of a duly notarized document. As correctly held by the NLRC, "such
notarization gives prima facie evidence of their due execution."24

Petitioners contend that the alleged notarization of the releases, waivers and
quitclaims by one Atty. Ramil Gabao did not take place, because there were no
records of such documents in the Notary Section of Manila. Thus, the prima facie
evidence thereof has been disputed.

The Court is not moved. Respondents should not be penalized for the failure of the
notary public to submit his Notarial Report. In Destreza v. Rinoza-Plazo,25 this Court
stated that "the notarized deed of sale should be admitted as evidence despite the
failure of the Notary Public in submitting his notarial report to the notarial section
of the RTC Manila." The Court expounded:

It is the swearing of a person before the Notary Public and the latters act of signing
and affixing his seal on the deed that is material and not the submission of the
notarial report. Parties who appear before a notary public to have their documents
notarized should not be expected to follow up on the submission of the notarial
reports. They should not be made to suffer the consequences of the negligence of the
Notary Public in following the procedures prescribed by the Notarial Law.26

It would have been different if the notary public was not a lawyer or was not
commissioned as such. In this regard, however, petitioners offered no proof.
Page 353 of 675

On the Revocation of MBMSIs


Certificate of Incorporation

Petitioners further argue that MBMSI had no legal personality to incur civil
liabilities as it did not exist as a corporation on account of the fact that its Certificate
of Incorporation had been revoked on July 2, 2003. Petitioners ask this Court to
exempt MBMSI from its liabilities because it is no longer existing as a corporation.

The Court cannot accommodate the prayer of petitioners.

The executed releases, waivers and quitclaims are valid and binding notwithstanding
the revocation of MBMSIs Certificate of Incorporation. The revocation does not
result in the termination of its liabilities. Section 122 27 of the Corporation Code
provides for a three-year winding up period for a corporation whose charter is
annulled by forfeiture or otherwise to continue as a body corporate for the purpose,
among others, of settling and closing its affairs.

Even if said documents were executed in 2009, six (6) years after MBMSIs
dissolution in 2003, the same are still valid and binding upon the parties and the
dissolution will not terminate the liabilities incurred by the dissolved corporation
pursuant to Sections 122 and 14528 of the Corporation Code. In the case of Premiere
Development Bank v. Flores,29 the Court held that a corporation is allowed to settle
and close its affairs even after the winding up period of three (3) years. The Court
wrote:

As early as 1939, this Court held that, although the time during which the
corporation, through its own officers, may conduct the liquidation of its assets and
sue and be sued as a corporation is limited to three years from the time the period of
dissolution commences, there is no time limit within which the trustees must
complete a liquidation placed in their hands. What is provided in Section 122 of the
Corporation Code is that the conveyance to the trustees must be made within the
three-year period. But it may be found impossible to complete the work of
liquidation within the three-year period or to reduce disputed claims to judgment.
The trustees to whom the corporate assets have been conveyed pursuant to the
authority of Section 122 may sue and be sued as such in all matters connected with
the liquidation.

Furthermore, Section 145 of the Corporation Code clearly provides that "no right or
remedy in favor of or against any corporation, its stockholders, members, directors,
Page 354 of 675

trustees, or officers, nor any liability incurred by any such corporation, stockholders,
members, directors, trustees, or officers, shall be removed or impaired either by the
subsequent dissolution of said corporation." Even if no trustee is appointed or
designated during the three-year period of the liquidation of the corporation, the
Court has held that the board of directors may be permitted to complete the corporate
liquidation by continuing as "trustees" by legal implication. 30 [Emphases supplied;
citations omitted]

A Labor-only Contractor is Solidarily


Liable with the Employer

The issue of whether there is solidary liability between the labor-only contractor and
the employer is crucial in this case. If a labor-only contractor is solidarily liable with
the employer, then the releases, waivers and quitclaims in favor of MBMSI will
redound to the benefit of PCCr. On the other hand, if a labor-only contractor is not
solidarily liable with the employer, the latter being directly liable, then the releases,
waivers and quitclaims in favor of MBMSI will not extinguish the liability of PCCr.

On this point, petitioners argue that there is no solidary liability to speak of in case
of an existence of a labor-only contractor. Petitioners contend that under Article
10631 of the Labor Code, a labor-only contractors liability is not solidary as it is the
employer who should be directly responsible to the supplied worker. They argue that
Article 10932 of the Labor Code (solidary liability of employer/indirect employer
and contractor/subcontractor) and Article 1217 of the New Civil Code
(extinguishment of solidary obligation) do not apply in this case. Hence, the said
releases, waivers and quitclaims which they purportedly issued in favor of MBMSI
and Atty. Seril do not automatically release respondents from their liability.

Again, the Court disagrees.

The NLRC and the CA correctly ruled that the releases, waivers and quitclaims
executed by petitioners in favor of MBMSI redounded to the benefit of PCCr
pursuant to Article 1217 of the New Civil Code. The reason is that MBMSI is
solidarily liable with the respondents for the valid claims of petitioners pursuant to
Article 109 of the Labor Code.

As correctly pointed out by the respondents, the basis of the solidary liability of the
principal with those engaged in labor-only contracting is the last paragraph of Article
106 of the Labor Code, which in part provides: "In such cases labor-only contracting,
Page 355 of 675

the person or intermediary shall be considered merely as an agent of the employer


who shall be responsible to the workers in the same manner and extent as if the latter
were directly employed by him."

Section 19 of Department Order No. 18-02 issued by the Department of Labor and
Employment (DOLE), which was still in effect at the time of the promulgation of
the subject decision and resolution, interprets Article 106 of the Labor Code in this
wise:

Section 19. Solidary liability. The principal shall be deemed as the direct employer
of the contractual employees and therefore, solidarily liable with the contractor or
subcontractor for whatever monetary claims the contractual employees may have
against the former in the case of violations as provided for in Sections 5 (LaborOnly
contracting), 6 (Prohibitions), 8 (Rights of Contractual Employees) and 16
(Delisting) of these Rules. In addition, the principal shall also be solidarily liable in
case the contract between the principal and contractor or subcontractor is
preterminated for reasons not attributable to the fault of the contractor or
subcontractor. [Emphases supplied].

The DOLE recognized anew this solidary liability of the principal employer and the
labor-only contractor when it issued Department Order No. 18-A, series of 2011,
which is the latest set of rules implementing Articles 106-109 of the Labor Code.
Section 27 thereof reads:

Section 27. Effects of finding of labor-only contracting and/or violation of Sections


7, 8 or 9 of the Rules. A finding by competent authority of labor-only contracting
shall render the principal jointly and severally liable with the contractor to the latters
employees, in the same manner and extent that the principal is liable to employees
directly hired by him/her, as provided in Article 106 of the Labor Code, as amended.

A finding of commission of any of the prohibited activities in Section 7, or violation


of either Sections 8 or 9 hereof, shall render the principal the direct employer of the
employees of the contractor or subcontractor, pursuant to Article 109 of the Labor
Code, as amended. (Emphasis supplied.)

These legislative rules and regulations designed to implement a primary legislation


have the force and effect of law. A rule is binding on the courts so long as the
procedure fixed for its promulgation is followed and its scope is within the statutory
authority granted by the legislature.33
Page 356 of 675

Jurisprudence is also replete with pronouncements that a job-only contractor is


solidarily liable with the employer. One of these is the case of Philippine Bank of
Communications v. NLRC34 where this Court explained the legal effects of a job-
only contracting, to wit:

Under the general rule set out in the first and second paragraphs of Article 106, an
employer who enters into a contract with a contractor for the performance of work
for the employer, does not thereby create an employer-employees relationship
between himself and the employees of the contractor. Thus, the employees of the
contractor remain the contractor's employees and his alone. Nonetheless when a
contractor fails to pay the wages of his employees in accordance with the Labor
Code, the employer who contracted out the job to the contractor becomes jointly and
severally liable with his contractor to the employees of the latter "to the extent of the
work performed under the contract" as such employer were the employer of the
contractor's employees. The law itself, in other words, establishes an employer-
employee relationship between the employer and the job contractor's employees for
a limited purpose, i.e., in order to ensure that the latter get paid the wages due to
them.

A similar situation obtains where there is "labor only" contracting. The "labor-only"
contractor-i.e "the person or intermediary" - is considered "merely as an agent of the
employer." The employer is made by the statute responsible to the employees of the
"labor only" contractor as if such employees had been directly employed by the
employer. Thus, where "labor-only" contracting exists in a given case, the statute
itself implies or establishes an employer-employee relationship between the
employer (the owner of the project) and the employees of the "labor only" contractor,
this time for a comprehensive purpose: "employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this Code." The law in
effect holds both the employer and the "laboronly" contractor responsible to the
latter's employees for the more effective safeguarding of the employees' rights under
the Labor Code.35 [Emphasis supplied].

The case of San Miguel Corporation v. MAERC Integrated Services, Inc. 36 also
recognized this solidary liability between a labor-only contractor and the employer.
In the said case, this Court gave the distinctions between solidary liability in
legitimate job contracting and in labor-only contracting, to wit:

In legitimate job contracting, the law creates an employer-employee relationship for


a limited purpose, i.e., to ensure that the employees are paid their wages. The
Page 357 of 675

principal employer becomes jointly and severally liable with the job contractor only
for the payment of the employees' wages whenever the contractor fails to pay the
same. Other than that, the principal employer is not responsible for any claim made
by the employees.

On the other hand, in labor-only contracting, the statute creates an employer-


employee relationship for a comprehensive purpose: to prevent a circumvention of
labor laws. The contractor is considered merely an agent of the principal employer
and the latter is responsible to the employees of the labor-only contractor as if such
employees had been directly employed by the principal employer. The principal
employer therefore becomes solidarily liable with the labor-only contractor for all
the rightful claims of the employees.37 [Emphases supplied; Citations omitted]

Recently, this Court reiterated this solidary liability of labor-only contractor in the
case of 7K Corporation v. NLRC38 where it was ruled that the principal employer is
solidarily liable with the labor-only contractor for the rightful claims of the
employees.

Conclusion

Considering that MBMSI, as the labor-only contractor, is solidarily liable with the
respondents, as the principal employer, then the NLRC and the CA correctly held
that the respondents solidary liability was already expunged by virtue of the
releases, waivers and quitclaims executed by each of the petitioners in favor of
MBMSI pursuant to Article 1217 of the Civil Code which provides that "payment
made by one of the solidary debtors extinguishes the obligation."

This Court has constantly applied the Civil Code provisions on solidary liability,
specifically Articles 1217 and 1222,39 to labor cases. In Varorient Shipping Co., Inc.
v. NLRC,40 this Court held:

The POEA Rules holds her, as a corporate officer, solidarily liable with the local
licensed manning agency. Her liability is inseparable from those of Varorient and
Lagoa. If anyone of them is held liable then all of them would be liable for the same
obligation. Each of the solidary debtors, insofar as the creditor/s is/are concerned, is
the debtor of the entire